Millennium Dome: School Visits

Lord Campbell of Croy: asked Her Majesty's Government:
	What are the arrangements for free visits by schoolchildren to the Millennium Dome; and from what sources these visits are subsidised.

Lord Falconer of Thoroton: My Lords, every school in the UK is eligible to apply for up to 100 free tickets to the Dome under the New Millennium Experience Company's education tour scheme. Up to 1 million free tickets will be allocated over a series of ballots. The costs attributable to this scheme, including its administration, the tickets themselves and the management costs of implementing it throughout the year are being met by the New Millennium Experience Company from the millennium experience project budget.

Lord Campbell of Croy: My Lords, I thank the noble and learned Lord for his reply. I recognise that the Government must now concentrate primarily on paying visitors to the Dome. What was the Government's reaction to the reports in the press earlier this month of the disappointment of children and their teachers at not being allowed into more than three specified zones--the duller ones, apparently? As regards the education contribution of the Dome, when will it be reclassified from being an exhibition to being a museum?

Lord Falconer of Thoroton: My Lords, the arrangements for the free entry of schoolchildren are a matter for the management of the New Millennium Experience Company. However, I think it would be wrong to suggest that the experience has been boring. I have a number of quotes describing what incredibly good fun and what a good educational experience it was for people who have visited the Dome. As to the point about being kept out of the more interesting zones, as the noble Lord put it, the majority of the people who enter the Dome free on school trips have free time there after they have completed the four-hour guided tour when they can go to any zone they wish.

Lord Lamont of Lerwick: My Lords, has the target number of visitors been reduced from 12 million to 10 million, as newspapers have suggested, and are those all paying visitors?

Lord Falconer of Thoroton: My Lords, the break-even figure has been put at 10 million; the target figure is 12 million, all of whom comprise paying customers.

Baroness Trumpington: My Lords, is the Minister aware that my grandchildren went to the Dome, had a perfectly lovely time and could not have enjoyed it more but were extremely disappointed that so many of the things they wanted to examine or play with were out of order?

Lord Falconer of Thoroton: My Lords, I am grateful to the noble Baroness for saying what a good time her grandchildren had. I suggest, with respect, that most adults and children who attend the Dome say they have had such an experience. The visitor attraction has been operating since 1st January. It now receives probably more visitors than any other visitor attraction in the whole country. It is not perhaps surprising that glitches occur that need to be sorted out. We are in the process of doing that and as every day goes by it gets better and better.

Baroness Gardner of Parkes: My Lords, does not the Minister think that even children's toys are expected to last more than two months? The Minister tells us that it is not at all surprising that things are not working too well. However, only a short period of operation has elapsed and I understand that the whole project is to last only a year.

Lord Falconer of Thoroton: My Lords, with the greatest respect that is an unfair comment. It is not in the least surprising that things need maintenance in a visitor attraction which attracts literally in excess of tens of thousands of visitors every day. They are being maintained.

Lord Lucas: My Lords, does the noble and learned Lord accept that my children's toys rarely last more than two days? Does he also accept their comment that they enormously enjoyed their visit to the Dome but felt that there was a lot of room for additional educational content? At many exhibits, for instance, the body zone, there was little explanation of what was going on. Their visit would have been more enjoyable if there had been something else to learn from.

Lord Falconer of Thoroton: My Lords, some people say that there is not enough educational content; some people say that there is not enough fun content; and some people say that there is not enough inspirational content. I think that the best course is to leave it to the management to determine the right balance.

Lord Weatherill: My Lords, does the Minister feel that the "Black Adder" film is appropriate for children to see? It is certainly not something that I would have expected my grandchildren to see. Will he use his influence to ensure that something more appropriate is shown? It is a great wasted opportunity.

Lord Falconer of Thoroton: My Lords, I do not know how old the noble Lord's grandchildren are. If my children were told that they could not watch "Black Adder" because it is too mature for them, they would be extremely surprised.

Letters Placed in House of Lords Library

Lord Swinfen: asked Her Majesty's Government:
	Whether they will make available to the public all letters to Lords which give answers to questions put to Ministers on the Floor of the House and all papers placed in the Library of the House in answer to such questions.

Lord Falconer of Thoroton: My Lords, as a general rule, the information in letters from Ministers to Members and other papers deposited in the Libraries of the House should be released by departments on request. Public authorities should make documents in the public domain available to those who request them.

Lord Swinfen: My Lords, does not the Minister agree with me that the Written Answer given to me by the Leader of the House that,
	"...points ... raised in debate are of particular interest only to the Peer who raises them".--[Official Report, 10/1/2000; col. WA 92.]
	was insulting to this House in general and derogatory of the general public?

Lord Falconer of Thoroton: My Lords, as the noble Lord did not draw my attention to the matter beforehand I have no idea of either the context or the detail of what was stated. As regards letters placed in the Library of this House as a result of questions put to Ministers, in the ordinary course of events the information in those letters should be made available by the relevant departments who have placed the letters there to members of the public who request it.

Lord Shore of Stepney: My Lords, does my noble and learned friend agree that it does to some extent devalue Hansard not to have a full reply printed in it, because Questions that are put down are often nowadays increasingly siphoned off with the words, "I am referring it to someone else to reply in a letter"? The information does become available, of course, in the Library, but subscribers to Hansard are denied the information which is often of general interest.

Lord Falconer of Thoroton: My Lords, the question of what is published in Hansard is a matter for the parliamentary and Hansard authorities, not for the Government. Noble Lords are shaking their heads, but the question of what should be in Hansard and, in particular, the question of whether accompanying correspondence should be included--which is the issue raised by my noble friend--are matters for Hansard to decide, because from time to time the department would not wish Hansard to be filled with too much correspondence.

Lord Shore of Stepney: My Lords, I was referring simply to Written Questions due to be answered.

Lord Falconer of Thoroton: My Lords, the issue in relation to Written Questions is whether accompanying correspondence is to be included, which is a matter for Hansard. The question for the Government is whether they should aim to include the bulk of a response in the body of the Written Answer itself rather than in the accompanying correspondence, to which the answer must be yes, one should try as much as possible to give a clear reply in the body of the Written Answer.

Lord Goodhart: My Lords, as Written Questions appear in Hansard, is it not appropriate that wider publicity should be given to the Answers and that, even if they are not published in Hansard, they should at least be published on the Internet to ensure that it is not necessary to go to the relevant department in order to make a specific request for that information?

Lord Falconer of Thoroton: My Lords, the position is that sometimes the relevant department does so and sometimes it does not. Where a relevant department has a website, it will in many cases be appropriate for information referred to, but not included, in a Written Answer to be available on the Internet site.

Lord Marlesford: My Lords, does the Minister agree that nowadays Written Questions often receive a reply along the lines of, "I am asking so-and-so to reply to this Question"? In that context, surely that reply should routinely and automatically be printed in Hansard? I was rather concerned when the Minister suggested that the length of the response was a factor, because we debated that matter a few months ago following a report to the House which contained the recommendation that no Written Answer longer than two columns should be included in Hansard. I understood that that recommendation was not to be followed up and implemented.

Lord Falconer of Thoroton: My Lords, I am told that when a Minister states that he is referring a matter to someone else and the relevant person answers, the answer is then published in Hansard. The question of accompanying material not being published in Hansard is a matter for Hansard and not for the Government. The issue for a Minister responding to a Written Question relates to how much is to be included in the body of the Answer. As I said to my noble friend Lord Shore of Stepney, one should include the guts of the Answer.

Lord Elton: My Lords, surely what goes into Hansard is ultimately a matter for the House and not for Hansard? Therefore, it will be for the relevant committee of the House to consider that issue. I should have expected that to be the Minister's answer. Since I have answered that question for him, will he give me another answer? Will he tell me whether I am right in believing that it is still the case that whenever during Question Time a Minister undertakes to write to a noble Lord to give an answer, that answer is always placed in the Library?

Lord Falconer of Thoroton: My Lords, I am grateful to the noble Lord for putting well what I was rather feebly trying to say: that the question of how Hansard publishes material is a matter for Hansard and, therefore, it is in practice a matter for this House. The noble Lord asked whether answers are always placed in the Library. I am not sure whether that is always the case and I cannot give him an absolute assurance on that point. Perhaps I may make inquiries and write to the noble Lord and place a copy of the answer in the Library.

Lord Avebury: My Lords, if a noble Lord believes that material given to him in the form of a letter from the Minister, whether by means of a parliamentary Question or in the course of ordinary correspondence, is of sufficient interest to the general public, surely there is nothing to stop him from giving it to the media?

Lord Falconer of Thoroton: My Lords, that is absolutely correct unless the material is given to the noble Lord in some form of confidence. I am told that some materials placed in the Library of either House are regarded as confidential; for example, in the mid-1980s, the then Home Secretary placed in the Library of the House of Commons correspondence with the IRA which was confidential. It was not published because it was placed in the Library on a confidential basis.

Lord Campbell of Alloway: My Lords, will the Minister agree that the Hansard department does an extremely fine job, including a certain amount of judicious editing, for which I am particularly grateful because I was rebuked the other day by the noble Lord, Lord McIntosh of Haringey, but the rebuke was not printed?

Lord Falconer of Thoroton: My Lords, I entirely agree with the tribute paid to the composers of Hansard. They do an excellent job. I know in my own case that often that which is complete garbage when I say it appears to make sense when I read it in Hansard.

Lord Lucas: My Lords, will the Minister undertake to ask the usual channels to ask the House authorities to ask those concerned in Hansard whether they will review the way in which they publish the proceedings of the House and other matters in the light of the new technologies available? Surely a great deal could be done by the way of hyperlinks to other documents to make it easy for people using Hansard electronically to obtain documents referred to in Hansard, without increasing by a single tree the devastation caused as a result of printing it?

Lord Falconer of Thoroton: My Lords, I am sure that the relevant committees of both Houses which deal with Hansard are well apprised of the need to keep up with modern technologies.

Lord Dubs: My Lords, is not the problem that quite often a supplementary question is so far removed from the original Question that no Minister could possibly be expected to have the answer in his folder? If the questions asked were closely related to the point of the original Question, letters would not be necessary.

Lord Falconer of Thoroton: My Lords, I quite agree.

Lord Cocks of Hartcliffe: My Lords, as Hansard staff are so valuable and we have paid such tribute to them, is it not a pity that the lift serving them on the third floor was not repaired and modernised during the Recess?

Lord Falconer of Thoroton: My Lords, I wonder whether my noble friend has just demonstrated the truth of the point made by my noble friend Lord Dubs.

Lord Bruce of Donington: My Lords, has my noble and learned friend observed over the past three or four months a growing tendency to incorporate in the Answers given by the Government an expression of regret that the records are not held centrally?

Lord Falconer of Thoroton: My Lords, from time to time Questions are answered in that way because in effect one would have to carry out a huge trawl around the whole of government to find answers where perhaps the effort was not justified.

National Museums and Galleries: Free Admission

Viscount Falkland: asked Her Majesty's Government:
	Whether it remains their policy to introduce free admission for all to national museums and galleries.

Lord McIntosh of Haringey: My Lords, funds have been made available to permit free access for children since April 1999 and free access for pensioners from April 2000 to the currently charging national museums funded by the Department of Culture, Media and Sport. We are continuing to assess the most effective ways of enhancing access in 2001. However, as at present, decisions will ultimately be taken by the trustees.

Viscount Falkland: My Lords, I thank the noble Lord for that Answer. It did not exactly answer the Question on the Order Paper, but I understand the Government's difficulties in giving free access to all. When the Government have to be selective about where they will give free access, will they always bear in mind that access to picture galleries for young people, whether they are students or young people in work, stimulates an interest and enthusiasm often for life, which is transmitted to future generations?

Lord McIntosh of Haringey: My Lords, I entirely agree with the noble Viscount's final point. I am glad that in putting that question he moved to the word "access" rather than the word "admission", which was used in his original Question. Access is a great deal more than just admission. Access includes the ways in which museums and galleries can improve the presentation of their collections and improve the hours in which they are made available; it includes the publicity for them; and it includes the way in which they are extended to the wider world outside museums and galleries. It is that wider sense of access about which the Government are most concerned.

Lord Jenkins of Putney: My Lords, does my noble friend agree that free admission to their own property is the right policy to adopt in this connection? Does he also agree that, while trustees must make their own decisions, they can be encouraged one way or another to adopt free admission? That policy has been an immense success and has increased access to museums and galleries. It would be a great pity to limit it in any way at all.

Lord McIntosh of Haringey: My Lords, my noble friend is too modest to remind the House that, when he became Minister for the Arts, he called in the directors of the museums and galleries and said, "You are not going to charge for admission"; and they did not. Those were happy and simpler days. We have always said, as my noble friend rightly says, that access will be the cornerstone of our cultural policy. We are always looking for new ways to achieve that. We are conscious that when we can achieve better access, including free admission, it actually works. The number of children going to galleries and museums which used to charge for access and which ceased to do so in April last year has increased over the year by around 22 per cent.

Baroness Blatch: My Lords, I declare an interest as an unpaid trustee of the Royal Air Force Museum. Perhaps I may ask why, as a national museum sponsored by a government department, it is not included in the policy to which the noble Lord has just referred. It has to wait until there is spare money in the defence budget in order to follow the policy, which is apparently a national policy for government-sponsored national museums.

Lord McIntosh of Haringey: My Lords, I am conscious of the problems there have been in discussions with the Imperial War Museum, which is the parent museum. Is the noble Baroness talking about Duxford?

Baroness Blatch: No, my Lords. The Imperial War Museum and Duxford are all right. They are included in the national concession. The Royal Air Force Museum at Hendon is not included in the national policy and yet it is a government-sponsored national museum.

Lord McIntosh of Haringey: My Lords, my original Answer referred to national museums funded by the Department for Culture, Media and Sport. I understood that that was the basis of the Question. However, I take the noble Baroness's point. If I may, I shall write to her and place a copy of my letter in the Library.

Lord Puttnam: My Lords, I declare an interest as a trustee of the Science Museum. The situation is not quite as clear as the noble Lord, Lord McIntosh, explained, because we have an insane situation with VAT. At present, if it is a free museum, VAT is not refunded, whereas if it is a museum with paid entry, VAT is fully refunded. At the moment an enormous amount of building work is being carried out at museums all over the country and large amounts of private finance are being used to enable that building work to take place. When will the Government unhook this crazy situation in which in order to become a free museum one is penalised by having to pay VAT on new building?

Lord McIntosh of Haringey: My Lords, my noble friend is of course right on his facts. It is true that, if museums were to become entirely free in terms of admission, they would lose the right to reclaim VAT, as they would cease to be businesses in a VAT sense, except on proceeds from their catering facilities and book stalls. As a result they would lose around two-thirds of their VAT reclaim. We have succeeded in persuading Customs and Excise that that should not apply if, as is now the policy, they admit children and pensioners free, but it is a matter for the museums to negotiate with Customs and Excise and to seek to persuade them that they are still businesses even if they have free admission. My noble friend's point about VAT and capital works is true as well.

Baroness Thomas of Walliswood: My Lords, is the Minister aware that the excellent opening of the Monet waterlily show on Sunday night is a perfect example of what my noble friend Lord Falkland is trying to achieve? People of all ages, kinds and descriptions crowded into the museum at very strange hours--I arrived there at about five o'clock in the morning--and it was a wonderful occasion. Is there anything the Government can do to encourage such an imaginative use of museums which really does increase both access and admission?

Lord McIntosh of Haringey: My Lords, the noble Baroness makes a most valuable point. I agree with her about opening hours. If she looks at the National Gallery, she will see that outside it boasts of the fact that there is still free access and that it is open for longer. We are anxious to encourage that for the permanent exhibitions as well as for the special exhibition to which the noble Baroness referred.

Baroness Anelay of St Johns: My Lords, if the Government have always meant that free access does not mean what the public believes to be free access--free admission--why in their press release of 24th July 1998 did they refer to the fact that the money they were giving to museums and galleries would,
	"enable Trustees of the major national collections--including those which currently charge--to introduce free access for children from next year; for pensioners in the following year; and universal free entry in 2001"?

Lord McIntosh of Haringey: My Lords, I did not say that free access was not the same thing. I said that access is a wider concept than free admission. Indeed, in the comprehensive spending review we have provided the money for trustees, if they wish, to provide free admission, other than for pensioners and children, in 2001. Some of them do not wish to do so. What happens to the money and the way in which we can achieve wider access is still a matter for discussion between the Government and the trustees.

Lord Tomlinson: My Lords, would my noble friend agree with me if I suggested to him that it is not just a question of central government funding? Will he join me in congratulating Walsall Metropolitan Borough Council on the opening of the new museum in Walsall, which it has guaranteed to be open free of charge to all citizens?

Lord McIntosh of Haringey: My Lords, I cannot wait to go to Walsall. It sounds very exciting. Lottery funds have been used as well as council funds.

Lord Tomlinson: And European funds!

Asylum Seekers

Lord Rotherwick: asked Her Majesty's Government:
	How many asylum seekers were sent home by the Government in 1999 and whether the statistics quoted by Lord Rotherwick on 8th February (Official Report, cols. 512-13) were "fictional".

Lord Bassam of Brighton: My Lords, provisional figures show that in 1999, 7,650 people who had at some time sought asylum in the United Kingdom were removed either to their country of origin or to a safe third country.
	I understand that the figures quoted by the noble Lord on 8th February were published in the Daily Mail. The figures are drawn from data published by the Home Office, but they are not capable of bearing the statistical inference that he sought to place upon them.

Lord Rotherwick: My Lords, I had hoped to be able to say that I was thankful to the noble Lord for his Answer. However, I am rather disappointed. If that was in effect his type of apology, then perhaps he could tell me so.

Lord Bassam of Brighton: My Lords, I was simply explaining that I could not possibly agree with the noble Lord's statistical inference in his original Question. The reasons are straightforward. The figures that he quoted related to the number of cases in which enforcement action had been initiated. One cannot simply abstract one from the other and conclude, as he did, that the rest have gone underground. Some will have claimed asylum; some will appeal; some will have won their appeal; some may have left without notifying the Immigration Service; and yes, some may have gone into hiding.

Lord Archer of Sandwell: My Lords, does my noble friend appreciate the dangers of becoming involved in an auction regarding the number of removals achieved? Does he accept that immigration officials are human and that, like all of us, they are susceptible to alarmist and populist pressures and that they need support in the form of effective training programmes, as recommended by the Council of Europe and by Amnesty International? Are such training programmes now in place, and what proportion of immigration officials have received training?

Lord Bassam of Brighton: My Lords, I am grateful to the noble Lord for that thoughtful question. Unfortunately, I cannot provide that detail now. I am happy to provide it in writing and to place a copy of the letter in the Library.
	The noble Lord is right in his comment about getting into an auction as regards the number of removals. We believe that there should be effective and efficient removals procedures. It is the case that last year there was a record number of removals: some 37,450 for asylum and non-asylum cases. That was the highest ever figure. We must have effective measures in place, and we must seek to treat people fairly and reasonably in all circumstances.

Lord Lamont of Lerwick: My Lords, will the Minister explain why, on 2nd February when we discussed Mr Tharcisse Muvunyi, the Rwandan, he refused to discuss the case on the grounds that one never discusses individual cases in the House of Lords; and when I asked the Minister in a Written Question to list all the cases that had been discussed in the House of Lords, he said that there were too many to list?

Lord Bassam of Brighton: My Lords, that is not quite the case. It is my understanding--and it has always been the understanding of governments of both the major political parties--that we should not discuss the individual circumstances of each case. We are right to take that view. Discussion could possibly prejudice the outcome of appeals and judicial review. Those are the circumstances in which it is right and proper not to seek to discuss individual cases in this House.

Lord Dholakia: My Lords, do the figures given by the Minister relate simply to asylum seekers or do they include immigration overstayers? Now that doors are closed to asylum seekers entering this country, will the Minister indicate whether there is any way in which a genuine asylum seeker can enter the country and claim asylum?

Lord Bassam of Brighton: My Lords, we always treat cases on merit. Genuine asylum seekers and others seeking asylum will have their cases properly assessed by the authorities as they should be. Yes, the figures do cover the other categories referred to by the noble Lord.

Baroness Whitaker: My Lords, is my noble friend the Minister aware that some London local authorities are having considerable difficulty in dealing with asylum applications?

Lord Bassam of Brighton: My Lords, I am aware that there are many pressures on London local authorities seeking to cope with the difficult issues arising from asylum applications. We are grateful to the Association of London Government and the LGA for the careful way in which they have worked with the Government to ensure that adequate, fair and reasonable procedures are in place for the dispersal of asylum applicants around the country generally.

Lord Mackay of Ardbrecknish: My Lords, perhaps I may refer the Minister back to the original Question and to his Answer to my noble friend Lord Rotherwick on 8th February. My noble friend pointed out that 7,000 people had been sent home and 20,000 people had been served with notices to go home. Those figures are roughly correct to the nearest thousand. Why did the noble Lord say that they were "fictional statistics" if what he really meant to say was that my noble friend could not assume that the other 13,000 had all gone underground? Surely his reference to "fictional statistics" was simply a wrong answer.

Lord Bassam of Brighton: My Lords, I am happy to concede that perhaps I could have used--

Noble Lords: Oh!

Lord Bassam of Brighton: And I have apologised to the noble Lord for that.

A noble Lord: In writing.

Lord Bassam of Brighton: My Lords, I have apologised to the noble Lord. He has received two items of correspondence from me. He has also had a meeting and discussion on the matter. I am happy to accept that the use of the term "fictional statistics" was perhaps unfair in the circumstances. However, I remind the House that statistics are the science of numerical inference. That point was made by the noble Lord, Lord Strathclyde, in his correspondence with my noble friend the Leader of the House on 10th February. Statistical inference is what this is all about.

Business of the House: Debates, 22nd February

Baroness Jay of Paddington: My Lords, I beg to move the Motion standing in my name on the Order Paper.
	It may be helpful to explain that it has been agreed among the usual channels that tomorrow's debate on the rules to implement the Greater London Authority elections should be before the Second Reading of the Electronic Communications Bill.
	Moved, That Standing Order 40 (Arrangement of the Order Paper) be dispensed with tomorrow to allow the Motion for an humble Address to be taken before the Second Reading of the Electronic Communications Bill.--(Baroness Jay of Paddington.)

On Question, Motion agreed to.

House of Lords' Offices: Select Committee Report

Lord Boston of Faversham: My Lords, I beg to move the Motion standing in my name on the Order Paper.

Moved, That the Third Report from the Select Committee (HL Paper 32) be agreed to.--(The Chairman of Committees.)
	Following is the report referred to:
	Re-opening of the Line of Route to the public
	The committee recommends that the public Line of Route should be re-opened for seven weeks during the coming Summer Recess. This proposal has already been approved by the House of Commons.
	The re-opening of the public Line of Route is experimental. The committee will undertake an early review of its operation in conjunction, as necessary, with the relevant committee of the House of Commons, which, it is expected, will undertake a similar review.
	The existing rights of Members of both Houses to sponsor visits to the Palace will be maintained.
	On Question, Motion agreed to.

Financial Services and Markets Bill

Lord McIntosh of Haringey: My Lords, I beg to move that this Bill be now read a second time.
	The Financial Services and Markets Bill will enable the arrangements for regulating financial services to be brought and kept up to date with developments in one of our most important industries.
	The Bill will replace a plethora of bodies with a single regulator, the Financial Services Authority. It will similarly provide for a single scheme to award compensation to consumers and a single ombudsman scheme for resolving consumer complaints. The Bill will equip the FSA with a full range of statutory powers. It will also impose requirements and duties on the FSA to ensure that those powers are used in the pursuit of effective and fair regulation in the interests of the industry and of the public at large.
	The Bill reaches this House in a state that reflects a quite unprecedented degree of scrutiny. A draft Bill was published for consultation in the summer of 1998, and a large number of helpful comments were put forward by industry and consumer bodies and others. Early last year the Government indicated in broad terms their response to those comments. That document then formed part of the raw material, along with the draft Bill, for the deliberations of the Joint Committee on Financial Services and Markets. I strongly commend, as have many others outside this House, the great skill and dedication of the noble Lord, Lord Burns, in chairing this innovative committee of Members of both Houses. I pay tribute also to the work of other Members and former Members of this House who served on it, and not least to the important contribution of the late Lord Montague of Oxford, whose presence is much missed.
	The Government believe that the process of pre-legislative scrutiny was most valuable in improving what was inevitably a wide-ranging and in many respects highly technical Bill. The committee of the noble Lord, Lord Burns, made several important and extremely constructive recommendations. The great majority of those have been accepted by the Government, if not in every case to the letter, then in spirit. The Government published a detailed response to the committee and a number of significant improvements were made to the Bill either prior to its introduction or during its progress through the other place. Following completion of its passage on 9th February, the Treasury sent to the noble Lord, Lord Burns, a detailed and up-to-date analysis of how the Bill had been changed in relation to his committee's recommendations. That memorandum has also been made available to Members of this House.
	The Bill's line-by-line scrutiny in the other place was extensive and thorough, with well over 100 hours devoted to it. In all, some 750 government and 650 opposition amendments were debated. The Government believe that, as a result, the Bill introduced into the House represents a clear consensus of public opinion and that, technically, it is generally sound. Those with very long memories will recall that the Financial Services Act 1986--I do not see in his place my noble friend Lord Williams of Elvel who played such a valuable part in that legislation--was amended in the second House to an extent that we shall not emulate, if we can help it.
	However, inevitably we need to table a significant number of further, largely technical amendments in this House. Those amendments are needed to clear up various technical problems and to meet or complete policy commitments made at an earlier stage. In particular, we shall table amendments to transfer responsibility for listing from the Stock Exchange to the FSA; to rationalise the decision-making processes in the Bill; to improve and achieve greater consistency in the use of certain definitions; to clarify the FSA's rule-making powers and improve the procedures for competition scrutiny of them; and to amend the provisions on collective investment schemes in relation to Gibraltar and the arrangements for mutuals. We shall also introduce additional provisions for transitionals, consequentials and repeals.
	The financial services industry in the United Kingdom is one of our great success stories. Financial services account for about 7 per cent of gross domestic product and contribute £32 billion net to the balance of payments. The City of London, which is one of the three leading global financial centres, is rightly renowned for its innovation and integrity and is home to hundreds of foreign banks. It is a major insurance centre and leads the world in foreign exchange dealing and eurobond issues and trading. Moreover. the days when British financial services were thought to be equated solely with the City of London, and perhaps Edinburgh, are now past. Financial services are increasingly important components of many local economies, including Leeds, Manchester and Bristol among others.
	The health, integrity and reputation of this industry are of paramount importance to everyone in the United Kingdom. Apart from the great number of those employed by it, of whom there are more than one million, many millions more rely on the industry to look after their savings and advise them on financial matters. Firms in all sectors of the economy look crucially to the financial services industry as a source of finance.
	In addition to continuing to grow in importance in recent years, the industry has undergone profound structural changes. In particular, the old dividing lines between insurance, banking and investment business have broken down, The existing legislation follows those historic boundaries, with separate Financial Services, Banking and Insurance Companies Acts. The provisions of these Acts are sometimes inconsistent and their overlapping arrangements for the authorisation of firms are costly and impossible to justify. Existing legislation creates an institutional structure of multiple regulatory bodies which is, to say the least, confusing for consumers and firms alike, with no apparent benefits in the context of modern markets. The Bill seeks to sweep this confusion away and to put in place a single statutory regulator which operates on the basis of a single set of powers and duties. This radical approach sets an international precedent which has engaged the interest, even admiration, of many other jurisdictions. Some are already beginning to follow our example.
	It is not the intention of the Government unnecessarily to expand the scope of regulation. On the contrary, the new regime is confined to those activities that are covered in existing legislation. We are, however, prepared to act where necessary. Recently, we announced that the FSA would have responsibility for mortgage lending to ensure that borrowers get better information at the time that they make a very important decision.
	Noble Lords will be relieved to know that much of the Bill is not substantially new. Although in all areas we have sought to make improvements to existing legislation, in many cases we are in essence reproducing or consolidating existing provisions: for example, Part XVII of the Bill, whose 50 clauses are closely based on the existing collective investment scheme provisions in the Financial Services Act, or Part XVIII, which closely tracks the present arrangements for recognised investment exchanges.
	There are, however, many important innovations. For example, the Government have taken the opportunity presented by new legislation to clarify the purposes of financial regulation and to articulate key principles regarding the way it should be carried out. Clause 2 of the Bill sets out the statutory duties of the FSA, which is to have four objectives. The FSA will be required to maintain market confidence, promote public understanding of financial services, secure the appropriate degree of protection of consumers and reduce financial crime. In meeting these objectives the FSA must have regard to a number of important factors. The first is efficient and economic operation. The second relates to the need neither to disregard nor to usurp the responsibilities of the management of firms. The third is proportionality as between the costs and benefits of regulation. The fourth is the need for innovation. The fifth is the international dimension in regulation, including the maintenance of the UK industry's international competitiveness. The sixth principle relates to the impact on competition.
	The drafting of this last principle has been significantly improved in the light of last year's interim report to the Chancellor on competition and banking by Don Cruickshank, to whom the Government are most grateful. I look forward to the early opportunity for this House to debate these important duties in detail. The Government believe there is a strong consensus that they are the right ones, which was the view taken by the committee chaired by the noble Lord, Lord Burns.
	From the outset the Government were aware that in creating the FSA they would be creating a very powerful regulator. We therefore fully expected, and welcome, the lively debate which has taken place about the need to ensure that it operates in a way that is fair and fully accountable. The Government's determination to get it right is wholly consistent with their incorporation into UK law of the European Convention on Human Rights and the high standards of accountability that they expect from bodies which exercise public functions.
	The debate about fairness and accountability takes place despite, and not because of, the high reputation that has been acquired by the FSA to date under the excellent leadership of its Chairman and Chief Executive, Howard Davies. Mr Davies enjoys the full support and confidence of the Government and, we believe, of the financial services industry. It is, however, entirely right and proper that we ensure that the legislation contains the necessary statutory safeguards for the future. We believe that it does.
	The FSA will be subject to a range of measures to ensure adequate accountability to the Government and the public. There will be an annual report to the Treasury which will be laid before Parliament and debated at an open public meeting. The chairman and members of the governing body will be appointed and liable to removal by the Treasury. They will also be able, where the need arises, to commission value-for-money studies and inquiries into any events which may suggest possible regulatory failure. The FSA will be subject to extensive statutory consultation requirements in relation to the exercise of its rule-making powers and consult with panels which represent the interests of consumers and practitioners. The FSA will be required to appoint, with Treasury approval, an independent person to investigate and publish complaints against it.
	The Bill contains a large number of delegated powers. This reflects the complexity of financial regulation and the need for regulation to be able effectively to adapt against the background of continuously and rapidly developing markets. Delegated powers are rightly of great interest to this House. I am most grateful to the noble Lord, Lord Alexander of Weedon, and the Delegated Powers and Deregulation Committee for their very prompt report on the Bill. Their earlier most helpful memorandum to the noble Lord, Lord Burns, accepted that in principle the delegation of powers under the Bill was appropriate. The report now reiterates that position and welcomes the fact that the Government have put in place certain additional safeguards which were recommended by the committee. We very much hope that we shall be able to respond positively to each of the recommendations of the committee and table considered amendments at Committee stage.
	The Bill also contains important measures to ensure that the FSA's powers to take regulatory action against firms and individuals operating in the industry are used in a fair and open way. The FSA's internal disciplinary arrangements must include separation of those responsible for disciplinary decisions and those preparing cases. Details of these arrangements will be published and subject to consultation. The Bill requires adequate notice of proposed disciplinary action to be given to those affected, with rights to make representation. In addition to these internal safeguards, all cases can be referred to, and examined afresh by, a new tribunal which is wholly independent of the FSA. The financial services and markets tribunal will be run as part of the Court Service by the Lord Chancellor's Department. As an authority exercising public functions, the FSA will, of course, also be potentially susceptible to judicial review.
	One of the most important parts of the Bill is Part VIII, which provides for a new regime of penalties for market abuse. This regime, to be supported by a code of conduct drawn up by the FSA in consultation with the industry, will complement the existing criminal offences of insider dealing and market manipulation. Again quite rightly, the details of the market abuse regime have given rise to extensive comment and debate. The Government announced to the Joint Committee last May that the penalties regime would be subject to the protections that would be appropriate if it were found to be criminal for the purposes of the European Convention on Human Rights. The Bill, therefore, prohibits the use of compelled evidence, and provides for a scheme of legal assistance in these cases. The committee also recommended that consideration be given to the same protections being extended to the disciplinary regime under the Bill. We do not, however, believe that it would be necessary or appropriate to do that for reasons that have been set out fully by the Government and our legal advisers.
	The debate about ECHR protections is one of many which highlight the need to achieve a balance in the Bill, to ensure that in our pursuit of fairness, accountability and due process we do not undermine the regulator's ability to regulate. The Government are strongly committed to fairness and to respecting the rights of those who operate in the financial services industry. At the same time, we must not lose sight of our objectives in regulating financial services.
	Financial products and markets are often complex and sometimes opaque. It would be naive or disingenuous to disregard the fact that opportunities for abuse and exploitation are plentiful, as history has shown. It would also be quite wrong to forget the damage that can be done as a result of unacceptable practices. Individuals who entrust their life savings to others are undoubtedly vulnerable. And we are mindful also of the economic damage that can arise from events that undermine public confidence in the integrity of our markets.
	I am sure that as a result of the debates we shall have in the coming weeks this most technical of Bills will be further improved. We intend, however, that the need to maintain balance should be kept well to the forefront.
	The Government's view is that the Bill does indeed strike the right balance. It will provide for a light touch wherever possible with appropriate and effective protection where that is necessary. It will lead to regulation of a vitally important industry in a way that is efficient, proportionate, fair and accountable. I commend the Bill to the House.
	Moved, That the Bill be now read a second time.--(Lord McIntosh of Haringey.)

Lord Saatchi: My Lords, I look forward very much to hearing noble Lords' reflections on the Bill today, and I am delighted and honoured to open the debate on behalf of our Benches.
	I have seen grown men weep at the sight of the Bill. It is the single biggest piece of legislation that the Government have introduced. It is 215 pages and 408 clauses long. In its epic 18-month passage through another place it attracted 1,450 amendments. A Standing Committee sat for 70 hours in 35 sessions. A fine Joint Committee of both Houses, chaired by the noble Lord, Lord Burns, prepared a set of 37 recommendations. The Bill outlasted three complete sets of ministerial teams.
	But I have no doubt that your Lordships' House will rise to the challenge of the Bill. One has only to look at today's list of speakers from all sides of the House--distinguished economists, former Cabinet and Treasury Ministers and leading practitioners in the field among them--to know that.
	From our Benches, I say right away that we support the primary effect of the Bill: the creation of an overarching financial services authority. That is why my honourable friends in another place have been constructive throughout in their criticism of the Bill. The Government have responded positively on many occasions to the issues they raised, as they have to the many changes recommended by the committee chaired by the noble Lord, Lord Burns. I do not see a great deal of party political capital in this Bill for any side of your Lordships' House and I hope that the Government will consider in that spirit the points noble Lords will raise in the debate.
	I hope also that the Minister will not mind being reminded of the so-called Jay doctrine in which the Leader of the House declared that this House is now,
	"more legitimate ... more effective ... has more authority ... carries more weight..[and that] therefore the executive will be better held to account".
	In particular I hope that the Government will not take advantage of your Lordships' House by using this House to implement another raft of government amendments--the Minister said that they would clear up technical problems--the only effect of which is to undermine confidence in the Bill while at the same time trying to deny the legitimacy of any amendment noble Lords may wish to make. I hope that that is true because this Bill is most important. It changes the face of regulation of one of Britain's most vital industries.
	As the Minister said, Britain's financial services industry is the UK's largest business sector. If it did not exist the UK would be in balance of payments deficit permanently. The Treasury's regulatory impact assessment for the Bill highlighted the scale of the effect the Bill will have on both households and regulated businesses. Around 90 per cent of UK households use financial services products. Thirty-four thousand businesses will be affected. That figure includes 6,000 banks, 70 building societies, 850 insurance companies, 4,200 providers of retail financial services, 1,300 securities and derivatives firms, 1,100 investment management and fund management firms, not to mention dozens of professional bodies and 15,000 solicitors and accountants.
	As the Minister said, the basic purpose of the Bill is to bring together into one regulator the nine regulators of a diverse industry. That is logical because it reflects an inexorable trend in the industry to consolidation. Displaying impeccable commercial logic, banks, for example, have said to themselves, "We have 20 per cent of the retail banking market in Britain but only 2 per cent of the insurance market and only 3 per cent of the mortgage market. If only we could have our 20 per cent of those markets too what a splendid business we should have." The insurance and mortgage world have done the same in reverse. The result is consolidation into bigger groups with more product diversification. That is well and good and explains why we need one regulator.
	However, if I had to sum up in one word why our Benches have residual concerns about the Bill, it is because there is another trend which is even more powerful than consolidation. That is globalisation and its handmaiden the Internet. In a globalised Internet regime, the old business dictum of "location, location, location" counts for nothing. Business can be transacted from anywhere, for anywhere, especially in a non-physical virtual industry like financial services. For example, the Financial Times recently reported that the American share of many categories of business in Europe is increasing as the Internet share of those businesses increases, simply because America is ahead in the Internet.
	Let us take another example. I gather that Deutsche Bank is planning to invest something like 10 or 11 billion dollars in building an online relationship with its customers in Europe over the next 10 years. Other banks are doing the same. That is the reason we are concerned about the Bill's impact on this sector. We wonder what will be Britain's share of that global electronic business. Why should Britain's share be any more than its share of world GDP--that is, around 5 per cent, instead of the 25 per cent share of maritime insurance that we now enjoy, or our current 55 per cent share of all global trading in non-UK companies?
	We should remember that Britain has no God-given right to a disproportionate share of this totally international business. Already the majority of the top investment banks in the City are foreign owned. We should not forget how quickly a British industry can drift away. In 1900 we had 42 per cent of world shipping. In 1979 it was 7 per cent. Today it is 1 per cent.
	As noble Lords have stated repeatedly, our financial services industry is uniquely mobile. The City is under almost ceaseless attack; competition in world markets is pitiless and continuing. Any new regulatory system in this country must respect those factors, and while it should be effective, it should avoid imposition of excessive costs. Whenever possible, it should assist Britain's competitiveness in world markets. If it fails to do that, our economy will suffer great damage.
	As the Minister stated, we have to achieve a balance--an excellent word--between regulatory purity, which is itself a competitive asset, and stifling highly creative and innovative markets.
	Britain needs an FSA that is effective and streamlined and has clarity and transparency. It needs a body to protect investors and savers. However, Britain does not need a leviathan or a Frankenstein's monster that threatens the competitiveness, pre-eminence and international appeal of our financial services community and for which ultimately the consumer will pay. That would be a major lost opportunity in the Bill.
	Despite the length of the Bill, we are concerned that it is almost a skeleton Bill. To inspect the body we have to await secondary legislation and guidance manuals. My noble friend Lord Alexander of Weedon will describe the view of the Delegated Powers and Deregulation Committee on that point.
	We should like to see a number of changes made to the Bill. We will be able to consider those at Committee stage, but it would be helpful at the outset to summarise our five main concerns. The first is the issue of governance and the definition of the roles of the chairman/chief executive and the non-executive directors of the FSA. These Benches would like to understand better why the combined code of corporate governance developed over many years by the Cadbury, Hampel and Greenbury committees should not apply to the FSA. It is true to say that the FSA is not a normal commercial company. It is a company but it does not have normal shareholders. Nevertheless, we think that the onus is on the Government to explain why these standard good governance principles should not apply to the FSA. After all, the FSA supervises the very bodies that are obliged to ensure that these guidelines are followed by their clients and customers.
	I have heard some plausible arguments from the FSA itself for excusing it from these conventions. I am not personally convinced by them. I stress that it is not the present incumbent of the chairmanship and chief executiveship of the FSA that we fear; it is his heirs and successors and the tendency of all regulatory bodies to suffer from "regulatory creep". In this concern, we are echoing the thoughts of the Joint Committee chaired by the noble Lord, Lord Burns. We wish to review whether a clearly accepted division of responsibilities at the top of the FSA will help to ensure a balance of power so that no one individual has unfettered powers of decision. We will want to examine whether a separation of powers, as well as a fully empowered non-executive director group, is needed for there to be an independent overall perspective on the running of this huge organisation.
	The FSA is a private company like no other: after all, it makes rules, enforces rules and levies unlimited fines. There is a huge concentration of power in the authority. It combines rule-making, investigation, disciplinary action and fining. Fines can be unlimited and people can be deprived of their livelihood. No private company can do that. That is precisely why we need to be even more certain, in the FSA's case, that there is a strong, independent voice at the top to avoid too great a concentration of power in the hands of the FSA executive.
	My second and third points are linked. In the Bill the FSA enjoys legal immunity, even if it acts negligently or recklessly. The Burns committee recommended:
	"This high degree of statutory immunity is only acceptable if a complaints investigator is fully independent and empowered to recommend appropriate financial awards where wrong conduct by the FSA has damaged a business."
	The Government rejected the Burns committee recommendations on this point and we are left with the unsatisfactory position where the immunity exists but the independent investigator does not. The Government can only state, "We expect to consult shortly on how the independent investigator might operate." We cannot accept that statement. We believe that if the FSA is to be granted such a high degree of legal immunity, then it is necessary to have a clear system of complaints that is wholly independent. There must be a way for an incorrect or wrong action by the FSA to be dealt with by an independent body.
	My fourth point concerns the legal definition of the proposed offence of "market abuse" in the Bill and whether the new offence should or should not be subject to the test of intent in relation to misuse of information, misleading the market or distorting the market. Distinguished and learned noble Lords will, I am sure, want to consider that matter because it is a key point in ensuring access to justice for those accused by the FSA. It is important that the authority's procedures are fair and that, if necessary, they can be challenged in court. Failure of the procedures would lead to injustices in a domestic context and the authority could be torpedoed by the European Convention on Human Rights.
	Notwithstanding the assurances given by the Government, we should not underestimate the importance of the European dimension. If the FSA does fall foul of Articles 6 and 7 of the European convention, then at least in the short term the whole regulatory structure could be in jeopardy and the FSA's powers to ensure fair trading and investor protection would be rendered ineffective.
	Above all, my final point is that we need to ensure that there is parliamentary control to provide appropriate checks and balances on the awesome power of this single unified regulator. At the very least, there should be an obligation on the part of the FSA to submit an annual report to Parliament, which could be scrutinised either by the Treasury Select Committee in the House of Commons, or perhaps by our new economics committee, or by a Joint Committee of both Houses established for this purpose.
	It is for Parliament to decide how, and how often, it wishes to carry out reviews of the FSA and who should carry out this task. The Treasury says that it will do it. But is that really appropriate? Why do we have bodies like the National Audit Office and the Comptroller and Auditor General if not for tasks such as these? The National Audit Office offered to become the auditor of the FSA, but this was not accepted by the Government. We should like to understand why.
	The Government argue that a number of reviews of the FSA would be subject to and depend on what it calls "circumstances", which are to be perceived by the Treasury. The FSA opposes regular parliamentary reviews because it says that they would cause "planning blight". However, we believe that we must secure the accountability of the FSA to Parliament. The immense scope of the FSA means that it will control a huge section of our economy and is a public body. Its actions will touch the lives of millions of people, and although constituted as a private company, it will have a statutory objective and will carry out policy in the public domain. To argue, as the Government do, that because it is a private company that does not receive public funds it should not be examined by the NAO or CAG is bizarre. The BBC does not receive public funds either. But who would deny that it, like the FSA, is of such importance that it should be subject to full parliamentary scrutiny?
	The Bill is much improved from the bad and dangerous draft that first appeared almost two years ago. However, these Benches believe that there remain substantial areas for further improvement. I was pleased to hear the Minister confirm that he could contemplate that position. I have outlined some of our concerns, and we should like to return to these and other matters in more detail at Committee stage.
	It is vital to get the Bill right. If we do not, we will be endangering the livelihood of thousands of people who work in this industry and undermining the largest and most successful area of Britain's economy. I hope that we have been constructive in our approach to the Bill to date, and I assure noble Lords that we will continue to be so. We have a very simple philosophy towards the Bill, which resolves itself into a simple question: who guards the guardians?
	Two hundred years ago Edmund Burke wrote:
	"The greater the power, the more dangerous the abuse".
	Is it asking too much that this supremely powerful body should account to independent directors and submit itself to an independent complaints procedure; and that it should be subject to an independent audit and give a full account of itself to Parliament? That is not asking too much of the FSA; in fact, it is the least that Parliament is entitled to ask from a body on which it is bestowing so much power and public trust.

Lord Taverne: My Lords, like the noble Lord, Lord Saatchi, I am daunted by the size of the Bill. As the Minister pointed out, much of it is concerned with consolidation, but what is new presents the House with a formidable task and I suspect that many nooks and corners of the Bill will never be examined. It reminds me of a story of a town clerk in Birmingham who was unhappily married at a time when divorce was possible only by Act of Parliament. He was the author of a long water Bill relating to Birmingham. It was passed, to his great delight, because hidden away in one of the unread schedules were the words, "And the marriage of the town clerk of Birmingham is hereby dissolved". I do not believe that there are any such provisions in this Bill, but parts of it will remain unexamined.
	I want to make some general remarks and concentrate on four particular issues of importance about which we on this side of the House have concerns, reservations and, in some cases, objections. I begin by declaring an interest; and I hope to do so once and never have to do so again. I am concerned with three different organisations which will be regulated by the Bill. I am chairman of a life assurance company, deputy chairman of an investment trust and deputy chairman of a small industrial development bank.
	I begin with some general comments. Like others, we thoroughly approve of the main purpose of the Bill. Having only one regulator presents opportunities for greater clarity, simplicity and reduced costs and should lead to greater accountability. Secondly, the task on which the Government have embarked is inevitably one of enormous ambition and complication. There is no other single regulator in any major financial centre as head of an integrated organisation of the kind being set up. It needs to strike a balance between a number of conflicting principles, aims and considerations. It needs effective regulation which inspires confidence, prevents malpractice and protects investors and consumers. But it also needs regulation, which is flexible and does not prevent innovation and competition.
	I remember many years ago looking at a comparison of the life insurance industries in Britain and Germany. The German system, prior to the relatively recent life directives from the European Union, was extremely well regulated in the sense that there was no collapse of any company and there was no fraud. However, there was precious little innovation. There was product regulation, which stifled innovation.
	Furthermore, the new authority must not impose excessive costs or burdens in case companies flee elsewhere. To some extent, those considerations conflict because what the consumers want is not what the companies want. Some people want to stop malpractice, while others want to ensure that there is a careful, proper procedure to protect those who are accused. So you cannot please everyone.
	I have some misgivings about the Bill because, despite a number of months which have passed since its introduction, the process has been rushed. The Burns committee, presided over so ably by the noble Lord, Lord Burns, was rushed. As a member, I found it impossible to read all the papers and submissions that were made or to attend several of the sittings. I am concerned that there are now hundreds of amendments to the Bill. After all, we have the awesome precedent of the Financial Services Act, which must be a strong contender for being the most amended Bill in history. I hope that we shall not emulate that experience.
	A flood of consultation papers--41 at the last count--has been received, latterly at the rate of one a week. Not surprisingly, one hears from the City stories about a certain amount of battle fatigue. There is a feeling of, "It is going to happen now. We cannot influence it any more and we shall have to see how it works out in practice. If in time to come it does not work out, we will up sticks and go somewhere else".
	There are misgivings, but there are certain grounds for reassurance. The first is that there is almost universal confidence in Mr Howard Davies. He is approaching his task most sensibly, has a very good record and is rightly highly regarded. Secondly, the aim of providing a two-tier system of control, with a light form of regulation for wholesale markets and a more detailed form for the retail markets, is a sensible approach. The idea of civil as well as criminal penalties is also most sensible.
	The new regulator and the FSA have begun well, with the publication of a document entitled A New Regulator for a New Millennium, which is full of common sense and shows a sophisticated and intelligent approach to the whole issue of control. I am reassured by the Government's reaction to the Burns report, most of whose recommendations were accepted.
	I was worried about the fact that so much has been left to delegated legislation, to statutory instruments, but I have been reassured by the report from the Select Committee, which seems to find the proposed process acceptable. Statements were made in the other place that there was fear in the City--and of course people are apprehensive about this vast new organisation--but I am reasonably optimistic that it will work.
	I turn to the more particular issues. The first concerns consumers. In the other place Mr Vincent Cable raised a point about vulnerable consumers. I shall not repeat his remarks because no doubt the noble Lord, Lord McIntosh, who reads everything, will have read them. In summary, he suggested that we should look at the special provisions which exist in the Utilities Act. It contains a section dealing specifically with disadvantaged consumers. That is important because the maxim of caveat emptor has been kept. On the whole, the new provisions, which modify that slightly by asking the authority to have regard to the different degrees of experience and expertise which different consumers may have in relation to different kinds of regulated activity, are reassuring. But still, 1.5 million people are shut out from the system of banking and financial mediation and perhaps they need special treatment. I hope that the Government will reconsider that issue.
	My second point is most important and in it I make common cause with the noble Lord, Lord Saatchi. It relates to the question of uniting the functions of the chairman and chief executive and the role of the board of governors. It is one of the most important issues, and, if the Burns committee recommendations were properly accepted, it could do a lot to reassure the City. Of course one can have a perfectly effective company in which the two roles are combined because of the nature of the individual. But we are not concerned to legislate for individuals; we are concerned to legislate for the long term. It may be fair enough that the new body starts with one eminent head who combines both roles, but in the long term that is not a satisfactory solution.
	I have read the reasons advanced by the non-executive directors for saying that the combined role is all right in the case of the FSA, but I find them singularly unconvincing and disappointing. Essentially, they are based on the absence of shareholders. The role of non-executive directors and an independent chairman is not only to be responsible to shareholders. The chief executive is normally responsible to shareholders. This is an irrelevant issue. Ultimately, the most important role of non-executive directors is as monitors and advisers on the strategic direction of a company. They are in a better position to monitor than anyone else. They have inside information on how an organisation works and personal experience of how the chief executive and other executives operate. They are far better placed to judge these matters than are outsiders.
	Monitoring is not only a question of the functions set out in Schedule 1 to the Bill,
	"(a) keeping under review the question of whether the Authority is, in discharging its functions in accordance with decisions of its governing body, using its resources in the most efficient and economic way;
	(b) keeping under review the question whether the Authority's internal financial controls secure the proper conduct of its financial affairs; and
	determining the remuneration".
	They go wider than that. Essentially, the non-executives should monitor the way in which an organisation works. If a combined chairman and chief executive is in charge of the board--or in this case the governing body--as well as the management, he or she is in an immensely powerful position. If that person controls the agenda and information coming to the board, it is much more difficult for the non-executives to find out whether the operation is functioning correctly and the main executives are properly discharging their functions.
	As I have said, the Financial Services Authority is different in that it is a much more powerful body than most corporate boards. It needs effective monitoring, overall direction and management. Another argument advanced against splitting the function is that accountability becomes more difficult. Perhaps there is something to that argument, but it is a problem that can be resolved. It has been resolved by the BBC, and what is good enough for that organisation should be good enough for the Financial Services Authority. I wholeheartedly agree with the approach of the Conservative Opposition in challenging this part of the Bill.
	My third point relates to mortgages. We wholly accept that mortgages should be included in the Bill, as should the question of long-term care, to which I understand the noble Lord, Lord Lipsey, will refer. However, the Government have made something of a dog's breakfast of their approach. First, they have included only first mortgages. When asked why second mortgages were not included, I believe that the Economic Secretary responded by saying that they concern only the financing of double glazing and so forth. In fact, second mortgages are needed for a variety of purposes.
	Secondly, the provisions do not cover advice. The Economic Secretary explained that by saying that the main worry to emerge was the amount of information people would get from lenders. However, a number of good points were made on this issue in the other place. Mortgages are fairly complicated nowadays and advice is needed to help people sort through the different mortgages to secure the one they want. Why should not advisers be covered when they are offering advice on mortgages?
	Thirdly, the Treasury has stated that in any case there is to be a push for simplification. Redemption penalties will be eliminated and CAT standards will be introduced. I am all in favour of more simple types of mortgages, but there is a danger that it may well not be wise to say what should or should not be outlawed in this way. It may be that the disadvantage of having a penalty for early redemption is balanced by another advantage. Mortgages are infinitely variable and it is right that there should be a wide variety. What we see here is a move towards product regulation, which was rejected by the Burns committee. We do not want to see product regulation because it will stifle innovation. I cited the example of Germany in the past.
	My final point relates to competition. Here I part company with the Conservative Opposition and, indeed, with the recommendation made by Mr Don Cruickshank, who said that competition should be one of the objectives of the FSA. I believe that the Burns committee got this right and I am not entirely happy with the way in which the Bill has been amended.
	In Clause 2(3), the Bill now says:
	"In discharging its general functions the Authority must have regard to--
	(d) the desirability of facilitating innovation".
	Fair enough. It goes on to say:
	"(e) the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom".
	That, too, is fair enough. But it then states,
	"(f) the need to minimise the adverse effects on competition that may arise from any exercise of its general functions;
	(g) the desirability of facilitating competition between those who are subject to any form of regulation".
	I believe that with paragraph (g) there is a danger of creating confusion. It comes close to making it an objective. As I understand it, the United Kingdom's competition law is designed to stop anti-competitive behaviour, not to promote competition, which is a different matter. Facilitating competition is now to be regarded as one of the duties of the FSA. However, there is an important difference between preventing anti-competitive behaviour and facilitating competition. If this is to be an objective, confusion will arise about the clash of responsibilities and the overlapping of roles between the Office of Fair Trading, the Competition Commission and the FSA. Three bodies will be concerned. I find the interaction between the roles of the FSA and the Competition Commission under Chapter III of Part X confusing enough as it is. We should examine whether the original wording of the Bill, as we saw it in the Joint Select Committee, is not preferable to the new form of words in subsection (3) of Clause 2.
	Many parts of the Bill will require critical scrutiny. Several noble Lords, including my colleagues, will no doubt raise those issues in the course of this debate on Second Reading. Overall, we intend to concentrate on the big issues. Everyone wants the Bill to succeed and I hope that, in enabling that, it will not take up an inordinate amount of the time of this House.

Lord Burns: My Lords, I shall also begin by declaring my interests as set out in the register. I am a non-executive director of Legal & General Group and I am also an adviser to Prebon Financial Consulting.
	At one point, Howard Davies suggested that this Bill was,
	"following an unusual and scenic route from the Treasury to Buckingham Palace".
	Indeed, perhaps I may say that at various stages I seem to pop up somewhere on the scene of action. At the Treasury my main interests were kept at a rather high level of generality and principle. Therefore it was with some surprise that I found myself elected as Chairman of the Joint Committee charged with the task of undertaking the pre-legislative scrutiny of the Bill. The challenge of moving from high principle to devilish detail is one that I would recommend to others as a valuable experience. Indeed, some would see it as a just reward for those of us who have lived our lives in this way.
	However, despite any initial worries, the Joint Committee was a fascinating and rewarding process and I feel privileged to have been a part of it. I am also grateful for the generous remarks that have been made about the work of the committee. It is right to pay special tribute to the joint secretaries of the committee. They produced miracles in the limited time we had available. We also had very good special advisers. I was personally helped by Barry Sheerman, the Deputy Chairman of the committee. His long experience of the other place was an enormous help to someone for whom this was very much a new experience. I believe that we all found that the experience represented on the committee was wide and deep and I think that we all very much enjoyed working with each other.
	Instead of having traditional sessions of oral evidence, we organised a number of seminar sessions where we heard evidence from a panel of witnesses. We had the pleasure of listening to David Roe, the head of the Treasury Bill team and Andrew Whittaker, the deputy counsel of the FSA. They attended each session and were able to offer rapid feedback. Indeed, afterwards many witnesses commented that they found this to be a big improvement over the traditional method of responding to consultation documents where apparently great frustration can set in over how quickly the Government respond and in what kind of detail. I believe that that played some part in the process of consultation and that possibly it played a part in the extent to which the Government were prepared to accept many of the recommendations of the Joint Committee. I note that in some cases that was expressed as "clarifying their thinking". However, I believe that noble Lords who are familiar with the language of Whitehall will know that that is consistent also with some shifting of minds. Of course, sometimes they disagreed, which they are entitled to do.
	It is always an ambiguous process to judge what proportion of the committee's recommendations have been accepted because some issues are much more important than others. However, I believe that, in general, members of the committee were content with the extent to which recommendations were accepted and the extent to which they felt that they had played a useful part in the process. I hope that that has added to the case for pre-legislative scrutiny and, in the process, has showed the benefit of Members of both Houses working together closely.
	This is a complex piece of legislation. Like others, I want to limit myself today to making general points. The first comes under the general heading of accountability of the FSA. I believe that everyone agrees that there is a clear case for bringing together under one roof the supervision of banks, building societies and security houses. We have global financial institutions and we need an integrated approach to supervision. I do not believe that there is now any real dispute about that. The Bill puts forward proposals to bring about that integration.
	At the same time, it will mean that we are creating a big and powerful organisation. As has already been pointed out, that has its own dangers. Not surprisingly, much attention has been focused on the right amount of accountability and the governance of the new organisation. The Joint Committee spent quite a lot of time on that issue, trying to achieve the right balance between the accountability of the organisation and ensuring that it can do its job effectively. The Government accepted many of our proposals for strengthening accountability, including greater requirements for feedback from consultation. In general terms, my view is that they are now satisfactory, although the House will want to consider some aspects of detail.
	Today, I wish to mention two particular issues under that heading. Both have been referred to already. The first is the issue of statutory immunity. Subject to being compatible with the ECHR, the committee was persuaded that it is necessary to give immunity. Financial supervision requires many difficult judgments to be made. If everything that the organisation did was subject to legal action, I am persuaded that that could lead only to over-regulation and excessive caution on behalf of the regulators.
	Of course, we recognise also that there is a danger with statutory immunity: a strong regulator can seriously damage regulated businesses or individuals. If it is done incorrectly, some process for seeking redress is required. The Joint Committee saw the way forward as having a strengthened complaints procedure and it asked the Government to consider whether the investigator should be able to award compensation to businesses or employees damaged by maladministration. The Government agreed to strengthen the role of the complaints commissioner. They said also that ex gratia payments may be appropriate subject to further consideration. I believe that it is important to strike the right balance here. However, the issue needs to be clarified and I am sure that it will come under close scrutiny in your Lordships' House. I hope that this is one issue on which we can obtain more clarity.
	My second point on the issue of accountability concerns the debate about the leadership of the FSA. This boils down to a debate between those who want the organisation to be led by an executive chairman and those who argue that there should be a combination of non-executive chairman and chief executive. The committee did not recommend any change in the present position with regard to Howard Davies, who is executive chairman. However, it suggested that in the longer term the post should be split. The committee could see the case that has been made for an executive chairman in terms of clear lines of accountability, but we saw also the advantages in limiting the power of, and focus on, a single individual. We believed, too, that the presence of a non-executive chairman would enhance the power of non-executives. However, it must be said that present non-executives have written to say that they do not need this support. Therefore, the Government have rejected the suggestion. I can see the Government's dilemma in relation to the particular position of Howard Davies.
	In the longer term, that issue will need to be reconsidered. I believe that your Lordships' House must decide whether it needs to be dealt with at this stage. My reading of the Bill is that it provides for flexibility in the governance of the FSA and allows for the structure to be changed as issues develop. I should be content to see how matters pan out and to look at it in the light of developments. At the same time, in no way would I withdraw from the longer-term preference of having the job divided.
	The second general issue that I wish to raise concerns the fear of excessive regulation, the burdens on industry and the whole question of the scope of what is covered by regulation. Many of us believe that savers and investors have a significant responsibility to be intelligent customers. The Bill recognises that by asserting the principle that consumers should take responsibility for their decisions. At the same time, it is necessary to recognise that financial products have special characteristics which need regulation. People make substantial financial commitments, very often for many years. It is difficult to see the full implications of their decisions.
	That, of course, brings us to the case for regulation. Personally, I am now reasonably happy with the balance that the Bill gives between the protection of consumers and concerns for the regulatory burdens and compliance costs. Some of the worries that the Joint Committee put forward have been dealt with; for example, the unnecessary authorisation for solicitors. However, there are two issues of scope on which I should also like to comment. Others have already mentioned them.
	The Joint Committee came down quite firmly on the side of including mortgage advice within the scope of the FSA because of the complex choices that are now available. We wanted a decision to be taken in principle. The Government have decided to regulate mortgage providers but they have not included the regulation of mortgage advice. I understand the logic of wanting to avoid unnecessary burdens, but I have to say that I do not see that as a sustainable long-term position. I believe that consumers will want clarity about the regulatory arrangements and we all want to encourage the provision of high quality advice. My fear is that this half-way house will lead to confusion about what is and is not regulated. I believe that it runs the danger of creating too much inconsistency and I suspect that it will be an ongoing source of trouble. Personally, I should have preferred to see authorisation of mortgage advisers included in the Bill.
	Similarly, I should like to see regulation of long-term care, as suggested by the Joint Committee. I am rather puzzled as to why the Government are so slow in dealing with this issue, unless there is a problem in bringing together the various interested departments and engaging in joined-up talking. We are told simply that it is under consideration. However, it seems to have been under consideration for quite a long time. I hope that the Minister will be able to give us an indication of when we shall hear the Government's position on this matter.
	My third general point concerns the question of the handling of discipline and enforcement by the new authority. We have heard a good deal of concern expressed about how individuals and small firms will be able to cope when faced with the might of the FSA. Many people have said that the FSA will be investigator, prosecutor, judge, jury and even executioner, all rolled into one. Again, a balance must be struck. That is important in order to protect the rights of individuals who work in the industry. At the same time, the arrangements for dealing with wrong-doers need to be effective. There is a particular issue about market abuse. Therefore, not surprisingly, the Joint Committee spent much time on the enforcement process and on the issue of market abuse in particular.
	So far as concerns the issue of enforcement and discipline, my view is that we now have a workable system that generally maintains the right balance. The process is divided between an administrative procedure built around the enforcement committee and a judicial procedure built around the tribunal. That seems to give us the best chance of settling most cases at the administrative stage while protecting the rights of individuals. In general, the safeguards that the Joint Committee asked for are now included, including the question of costs.
	There are two issues which I hope the House will wish to explore further. One is the degree of certainty in this regime. Many practitioners remain concerned that there is not enough certainty, although there has been a move to clarify that matter. The second is the difficult issue of whether the regime is compatible with ECHR. That applies to such issues as admissible evidence.
	The Government continue to argue that there is no problem because that is a club and the rules apply only to authorised persons. But my view is that there is still an issue here which we shall need to explore further.
	The issue of market abuse and whether it was right to have a civil regime for market abuse took up a lot of our time. In principle, I am happy about that idea. The committee took the view that it complements the existing criminal offences.
	Another issue which took up a lot of our time was whether the market abuse regime is criminal in substance in ECHR terms and whether the necessary safeguards appear in the Bill. That has now been largely sorted out.
	There was an issue also of whether there is an appropriate degree of certainty in relation to the drafting of the market abuse offence and the question of safe harbours. Again, the Government have responded positively on those issues.
	However, in one respect there is an issue as to whether or not the Government have gone too far; that is, the whole question of the definition of market abuse. There is now a test of how the behaviour will be regarded by a regular user of that market. That raises the interesting question of whether there are absolute or only relative standards of abuse in terms of what people regard as normal. We shall need to examine that.
	At this stage, I am slightly uncomfortable with the relative standard of the regular user of the market which seems to me to lack an objective anchor. But there are difficulties in relation to the drafting. In the Joint Committee we spent some time trying to think of how one would draft a description of a defence which would give greater certainty but which would also capture a whole series of events which may happen in the future but which are difficult to anticipate at this stage. Therefore, I am under no illusions. The drafting is difficult, but that issue will need to be debated.
	No doubt many matters will arise during our discussions of this enormous Bill. My main conclusion is to agree with those who say that it is an extremely complex piece of legislation and that it is very important. The industry has an enormous impact upon our economy. In general terms, the Bill deserves support. It tries to do the right thing. While giving that general support, there are many details at which it is right that your Lordships' House should be looking in considerable detail during the further stages of the Bill.

Lord Faulkner of Worcester: My Lords, I start by first declaring an interest, originally as an adviser to the Securities and Investments Board in 1997 and, subsequently, to the Financial Services Authority. I have obviously been able to follow the progress of this Bill and, indeed, the draft legislation from the very beginning, much of that time while I was not a Member of your Lordships' House. It has been clear to me that throughout that process it has benefited from a number of improvements compared with how it was when it first saw the light of day in July 1998. It has gone through an extraordinary combination of consultation, consideration by the Joint Committee and extremely lengthy deliberations in another place.
	Students of the parliamentary process will have noted some of the new procedures which have applied to this Bill. Reference has been made already--and I am sure there will be many more references--to the extraordinary thoroughness of the scrutiny given to the Bill by the Joint Committee, chaired with such distinction by the noble Lord, Lord Burns. That led to several significant changes being made to the Bill before it was even read a first time, particularly in the area of accountability.
	The decision that was taken in another place, with all-party support, to carry over the Bill--I believe that is the first time it has ever happened with a government Bill--from the last Session to this has meant that the timetable for enactment has not slipped significantly.
	While Parliament has been working on the Bill, the FSA has been preparing for the day when it is given its full responsibilities and can consolidate the powers of the three SROs and other regulatory bodies which come within the financial services sector.
	There has been no change to the FSA's four statutory objectives. Those remain the need to maintain market confidence; to promote public awareness; to protect consumers; and to reduce financial crime. Those were supported by the Burns committee, as were the general principles of good regulation. The principle relating to competition has been strengthened, as noble Lords have already mentioned, but sensibly, not to the point at which the FSA was effectively turned into a new competition authority.
	The fact that the Bill has arrived in this House in reasonable shape does not mean that we shall have nothing to discuss in Committee. I know that my noble friend Lord Lipsey is keen to include a provision on the regulation of long-term care. He speaks with immense authority on that subject, having served as a member of the Royal Commission on the Long-Term Care of the Elderly. I hope that the Government will consider carefully the points that he and other noble Lords make on that subject.
	There are other matters which I hope we shall have time to consider in Committee, particularly in the context of the market abuse regime. For example, I wonder whether sufficient attention is being paid to the growing problem of what are known as Internet bulletin boards as there are growing allegations that chat rooms are being used by unscrupulous investors to talk up the value of companies in which they have shares in the hope that they can push up the price and then sell at a profit. I believe that that is known in the trade as "scalping" or, rather more graphically, "pumping and dumping".
	Then there are the activities of the newspaper and magazine share tipsters which have occupied certainly the tabloid newspapers in a very big way over recent months. Howard Davies, the chairman of the FSA, was reported in the Financial Times on 9th February as saying that journalists will not be exempt from the new offence of market abuse which is proposed in the Bill. He made it clear also that the FSA could pursue City public relations companies which use journalists in an attempt to move share prices if they stood to make a profit from a rise or a fall.
	Market abuse is intended to be a civil offence and will complement the existing criminal law, which deals with such matters as insider dealing. The aim is to produce a stock market which is true and fair; where informed participants do not have their confidence damaged as a result of the activities of people who have access to price-sensitive information. That must be right.
	The Burns committee devoted a great deal of time and effort to the market abuse regime. Its conclusions have led to some very significant changes in the Bill, particularly in the context of the European convention, both before it started its passage in another place and later in Committee there. The Bill is a great deal better because of the work of the Joint Committee, and its members, in all parties and none, deserve the thanks not only of this House but of the financial community and customers of financial services outside.
	However, there is one area where I believe the Joint Committee got it wrong. That was on the question of the roles of the chairman and chief executive of the FSA and whether they should, in the longer term, be split. I am interested that noble Lords who preceded me, with the exception of the Minister, took the side of the Joint Committee on that subject.
	I shall conclude my remarks today by saying why, on this issue, I believe that the Government are right and why noble Lords who believe that that role should be split are mistaken.
	The main argument put forward in another place--and we have heard it again from the noble Lord, Lord Saatchi, this afternoon--for splitting the roles is that the current arrangements do not meet the recommendations of the Cadbury, Hampel and Greenbury codes and that they give too much power to one individual. I believe that I summarise reasonably accurately the point that the noble Lord made.
	However, those codes exist to protect commercial companies with shareholders. The FSA is not one of those as it has no shareholders. The governance model currently in the Bill, with an executive board and non-executive committee chaired by the senior non-executive director--in practice, the deputy chairman--is based exactly on the model put in place for the Bank of England and approved by your Lordships in the Bank of England Act 1998.
	The Shadow Chief Secretary, Mr Heathcoat-Amory, recognised on Report in another place that,
	"it has been argued fairly that most foreign financial regulators have combined the two tasks of chairman and chief executive".--[Official Report, Commons, 27/1/00; col. 601.]
	There is no reason for the UK to be different. We need to ensure that one person has the status to lead the FSA, both in its day-to-day business and in the international arena. For example, let us take the global and European organisations of securities regulation, known variously as IOSCO (the International Organisation of Securities Commissions) and FESCO (the Forum of European Securities Commissions). All the members of the governing bodies are full-time executive chairmen, and Howard Davies is one of them.
	It may be suggested that the present arrangement gives one individual too much power. We have heard that this afternoon. It is not intended that the chairman shall have a role in enforcement cases. There will be a separate enforcement committee, which will not include executive board members. It is that committee which will decide whether to bring charges and, if necessary, determine appropriate sanctions.
	The Bill sets out that there should be a majority of non-executives appointed by the Treasury and that they will keep under review whether the FSA is discharging its functions in the most efficient and economic way. The non- executives on the FSA board themselves made clear their views in their response to the Joint Committee. They argued that the two roles should not be split. They said,
	"Fears of an over-mighty executive are best addressed by a board that is fully integrated into the decision taking of their organisation, with the chairman in a full time executive role".
	I am sorry that the noble Lord, Lord Taverne, is not convinced by that, but when other noble Lords read that response, they may take a different view.
	I am sure that they are taking the most sensible approach, not just in present circumstances but for the future as well. There is obviously no wish on anyone's part to take away either the chairman's or chief executive's job from Howard Davies, whose reputation, as other noble Lords have already said, for distinguished public service seems to grow with every month that passes. It is important that he can hand on to his successor, whoever and whenever that may be, a vibrant, successful and respected financial services regulatory body whose creation, I believe, will come to be seen as one of this Government's great successes.

Lord Hunt of Wirral: My Lords, although your Lordships will be aware of the interest I have previously declared as senior partner of Beachcroft Wansbroughs, may I also mention that over the past 12 months I have been involved in the formation of a new trade body called the Association of Independent Financial Advisers. I have the honour to be its founding chairman.
	Perhaps I may start by saying that I join in the general sense of welcome for the Financial Services Authority. There was a very interesting survey of industry executives undertaken by the practitioners' panel. It revealed considerable support within the industry for the proposition that the old regulatory system had to be changed. I believe that that sums up the general view expressed already in today's debate that the creation of the FSA gives a great opportunity to get regulation right.
	The old two-tier system of regulation was seen as far too complex and obscure and its monitoring increasingly intrusive. In effect, the regulators were starting to second-guess businesses and judge them as to the extent to which they had ticked the necessary boxes on the relevant forms. The big picture was being lost. Now, the creation of the FSA gives a real chance to address those criticisms.
	In following the noble Lord, Lord Faulkner of Worcester, perhaps I may add that while many of us concur with his assessment of Howard Davies, I do not believe that that should blind us to the fact that we are creating an authority for many years and decades to come. I tend to agree with much of what the noble Lord, Lord Burns, said about that. My noble friend Lord Saatchi had some particularly relevant points to make. We should reflect on the structure of the organisation rather than the personalities involved in seeking to get the legislation right.
	There are two pointers which give me great hope for the future. First, the FSA has made a commitment to be open. To my mind that means that it should be a listening regulator. I believe it was the noble Lord, Lord Taverne, who referred to the fact that there had been 41 consultation documents. I believe that that was the figure at the beginning of January. I greatly welcome that. There has been an impressive array of well-arranged consultation documents. The FSA now needs to show that that is not just a process which it feels obliged to follow but that it reflects a listening and responsive attitude on its part.
	The second pointer is the fact that the FSA has unveiled a new philosophy, so ably described in its document A New Regulator for the New Millennium. Its proposals, with greater emphasis on themed regulation and risk assessment--a move away from nit-picking monitoring visits--are to be applauded. But its effect must permeate throughout the ranks of the FSA. In the past, the chief criticism of regulators has been that although those at the top have used fine words--in the phrase of the Minister, Lord McIntosh, earlier, a "light touch"--those words have not gone all the way through the authority. If inspection visits by FSA monitoring teams turn into a catalogue of niggling criticism and queries over form-filling, then the question will be rightly asked: has anything really changed?
	However, I have every confidence in the ability of that outstanding public servant, Howard Davies, and his team. I believe that we should also express our sympathy with them at the immensity of their task in knitting together so many regulators into one coherent whole.
	There are other positive signs. I welcome the FSA's attitude, in its approach to training and competence, of treating businesses as adult and responsible. That encourages businesses to take responsibility for their own destiny and to draw up training plans which are relevant to their needs rather than again undergo some bureaucratic form-filling exercise of calculating points for continuing professional development. Certainly, bodies such as AIFA will be working to help its members respond to the new environment. But no one underestimates the challenge which lies before the authority.
	I make a general point. The FSA has to show that it can handle all types of investment business. Most financial institutions are large, with complex internal processes to ensure adequate control of their businesses. They have complaints departments, compliance officers and directors of regulatory relations. But one key area of the market, IFAs, with whom I have been working over the past few months, are typically small firms and even one-man bands. The compliance director there will have a dozen other job titles and responsibilities. He or she will not talk the regulatory talk of some other much larger firms. The FSA has to show that it can adapt to handle these rather different people who form such a vital part of the financial services ecology.
	On that issue the FSA has been sending out some mixed messages. I applaud its determination to move away from the continued monitoring of small, low-risk business and to identify more accurately where risk lies both in business and product range. I agree with that emphasis because it may well lift the regulatory burden from well-run, thoroughly professional IFAs. But other messages have been less positive. The consultative paper on senior management responsibilities makes some sense if one is running a major financial institution. The requirements for clear job descriptions, lines of responsibility, and so on, make a great deal of good sense. But what if the business is rather small? To what extent will a set of formalised paper requirements enhance control in such a business? There is already an exemption for sole traders. Can the FSA not make it clear that the regulatory imposition of management responsibilities on, say, a local IFA with fewer than nine registered individuals will be handled flexibly and that the bureaucratic requirements for formalised management controls and their documentation will be kept to an absolute minimum?
	There is always a risk in regulation that what starts off as a commonsense system will accumulate added layers of procedure. It may be preferable to drop the requirement entirely for smaller businesses. That is perhaps something we can discuss at a later stage of the Bill. The incentive for proper management controls in such a business is far more immediate than a regulatory requirement. It goes to the very survival of the business itself. For IFAs there is no pot of other people's money--policyholder or stakeholder funds--into which an independent financial adviser can dip. Business survival is the best and most focused way of ensuring management accountability.
	There are other factors which will need to be remembered by the regulator. Every response to every consultation document by an IFA will come from someone who has taken time out from running his business to answer the form. Every completed form will have been filled in by someone whose job is not to fill in forms but who is occupied in running a business. Those businessmen will not understand the nuances and byways of the regulatory system, and the regulator must appreciate that.
	The IFA market is remarkably resilient. IFA numbers are substantial with 7,000 firms and 23,000 advisers facing up to the challenges of the many complex issues which affect their business. The days of high initial commissions are receding. IFAs, in the main, now rely on building good customer relationships which lead to repeat business. Incidentally, given the existence of such continuing relationships, the question of whether they are remunerated by fees or commission becomes a second order issue.
	IFAs rely on increasing levels of professionalism and client satisfaction. The public are becoming increasingly attracted to the idea of independent financial advice. More and more business is being channelled down that route. It would be a mistake to turn back the clock on customer understanding by reopening the question of polarisation. The present rules on polarisation make it clear to every investor whether the advice is independent or tied to a specific range of products. There is no half-way house; there is no blurring of the role of adviser and that of salesman.
	I hope that the FSA investigation into polarisation occasioned by the recent OFT report will conclude that no change is advisable and that the Government will accept that conclusion. The FSA should bear in mind the regulatory upheaval of tinkering with polarisation at a time when it is establishing itself and the new regulatory approach. It should bear in mind also that IFAs are a popular choice for investors because they offer what investors want.
	We look forward to scrutinising this legislation in much greater detail. How right was my noble friend Lord Saatchi to stress the importance of the e-dimension. The noble Lord, Lord Faulkner, mentioned how Internet platform pages can be manipulated and we must bear that in mind as we go through the Bill. We must be careful also to ensure that the legislation in no way damages our pre-eminent position in world markets. That will require careful handling with, above all, the light touch which I hope will be the hallmark of the legislation.

Lord Haskel: My Lords, I too come to this Bill with a sense of familiarity because I served on the pre-legislation Joint Committee. As my noble friend the Minister told us, it was a Joint Committee of both Houses of Parliament chaired by the noble Lord, Lord Burns. We had only eight weeks to scrutinise this Bill, and the noble Lord, Lord Saatchi, graphically told us how enormous it is. We did that thanks to the hard work and dedication of our chairman and I congratulate him on that.
	I should like to place on record my thanks to our three expert advisers and especially to our two parliamentary clerks. Without them we would never have got through the enormous amount of work required. But it was not only thanks to the clerks and the special advisers, but also thanks to two important innovations to which the noble Lord, Lord Burns, referred. First, representatives from the Bill team and the FSA were present at all our meetings. That meant that technical points could be settled on the spot. Secondly, witnesses were invited to give their evidence in groups. So some of our meetings were really seminars where the witnesses debated not only with us, but also with each other and the special advisers. That not only made our meetings more lively, but also speeded up our work. I hope that future Joint Committees will take notice of that because it was quite a success.
	The work of the committee was extended because the draft Bill raised a number of issues regarding the European Convention on Human Rights. That led us to propose that the two Houses should establish a human rights committee to examine draft legislation to ensure that it is compatible with the convention. I understand that that matter is now under discussion. Indeed, the Government seemed to accept most of the committee's recommendations, which is reassuring and indicates the value of pre-scrutiny.
	Our main concern was about compatibility with the European Convention on Human Rights in the area dealing with penalties for market abuse. We were concerned that individuals should not have their human rights abused by compelled evidence being used against them and that, if proceedings were taken against them, there should be equality of arms. Those concerns have been dealt with. The Bill has been amended to provide a scheme for legal assistance. It prohibits the use of compelled evidence and clarifies the whole area by applying that to regular market users; in effect, those who sign up to the rule book. That has made the Bill pretty fair, and it was with fairness in mind that we also considered the powers of the FSA.
	Other noble Lords reminded us how powerful the FSA is. We felt that the FSA itself should be regulated in some way. As the noble Lord, Lord Burns, explained, we asked that the investigation and discipline functions in the FSA should be separated and that the outcome of cases should be made public. We also felt that the FSA should not become a profit centre. So we suggested that the income from fines should go back to the firms being regulated and that the FSA should not have the power to award costs.
	The level of fines should also be proportionate, not only to the seriousness of the matter, but also to the ability to pay. That is important. A fine of £500,000 could bankrupt an individual but be hardly noticed by a medium-sized firm. The Government accepted those recommendations and the Bill is all the better for that. However, it does not go far enough. Like other noble Lords, I too should like to see the jobs of chief executive and chairman separated. I agree with my noble friend Lord Faulkner that the FSA is not an ordinary company. But a lifetime's experience in business taught me the value of that separation. There is more to an organisation than just shareholder matters.
	Like other noble Lords, I feel that the FSA is a large and powerful organisation in good hands now but, as the noble Lords, Lord Burns and Lord Saatchi, asked, what of the future? We all agreed that the FSA should be more accountable.
	The Bill contains welcome proposals for a consumer panel and a practitioner panel. We asked that these panels should become more independent by having a separate budget, and particularly that the practitioner panel should have an independent chairman. This has been agreed, and I believe that the balance is now about right.
	We also welcomed the single ombudsman scheme, but asked that this should be strengthened by excluding claims by financial services businesses to the ombudsman. I am sure that this will give a greater sense of ownership to the consumer and give the consumer more confidence in the ombudsman scheme.
	We also wished to give more confidence to the consumer by extending the scope of the Bill to include mortgages. One reason why this is important is that many mortgages today are combined with other financial services which are already regulated. The Government have gone part way to accepting this proposal, but I am sure that eventually all mortgage work will have to be regulated because it will be impossible to separate it out from other regulated financial services. However, the consumer meanwhile has no redress when sold a wrong mortgage and is open to exploitation, as the noble Lord, Lord Taverne, explained.
	In addition, the elderly who buy long-term care insurance are also open to exploitation. I know that my noble friend Lord Lipsey is concerned about this matter and that he intends to speak to this point. Many of us on the Joint Committee were also concerned about this. It requires some attention, and it would be interesting to know why the Government do not share our concern.
	Quite rightly, the Bill recognises that there are two separate markets--wholesale and retail. Each requires a different regulatory touch. The needs of the professional and the consumer are different. The consumer is on unfamiliar territory. That is why I share the concern of the noble Lord, Lord Taverne, that there should be a responsibility on the seller to ensure that the product is suitable for the buyer and that the seller should not be able to hide behind caveat emptor.
	There is another consumer interest to be considered relating to the policyholder. This was drawn to my attention by an article in the Financial Times last week. The Bill does not deal with the question of orphan assets--unclaimed money belonging to policyholders which has accumulated over many years. The Financial Times reported last week that some £20 billion of unclaimed money belonging to policyholders was floating about in space; £7 billion of this is with the Pru. The point is that this money belongs to past policyholders, but they or their representatives have no say at board level as to how this money is to be dealt with. As a result, the insurance companies seem to be using it to pay for mis-selling or are transferring it to shareholders.
	The Consumers' Association raised this with the Treasury Select Committee in 1998, saying that there was no representation to protect this surplus. It seems to me that this matter could have been dealt with in the Bill. It would be helpful to have the Minister's view of it.
	I too believe that the Bill serves a very useful purpose by defining the objectives of regulation. I welcome the fact that the Bill requires the FSA not only to prevent crime and market abuse and to regulate financial probity, but also to maintain confidence in the market and to encourage public understanding.
	One aspect of the Bill of which I am unsure is the way in which it deals with--or rather does not deal with--the international aspect of the financial services industry. The principle seems to be that the country of origin is in control. Therefore, the country of origin is responsible for the products and for the advertising. However, with all the changes that we are seeing in communications, about which my noble friend Lord Faulkner and the noble Lord, Lord Saatchi spoke, it is inevitable that the country of origin could not only be a tax haven in the Bahamas but conceivably a small boat moored in international waters.
	Of course, companies will ultimately succeed or fail on the quality of the product and services that they provide, but this implies an informed customer. For instance, customers who have not adapted to an era of low inflation can be wrongly influenced by projections based on inflation figures of five or 10 years ago. Indeed, they can also be influenced by the extraordinary and unusual recent rise in stock market indices. That can lead to serious mis-selling. That is why this international aspect will have to be watched very carefully.
	The Bill performs another very useful purpose. As other noble Lords have agreed, it brings together all the disparate regulators created during the 1970s and the 1980s. This is ambitious. However, it reduces the complexity and overlapping of financial regulation. The FSA is to be congratulated on bringing together all these organisations under one roof, while working under the old rules before this legislation receives Royal Assent. The fact that it appears to be working well is a tribute to the FSA and the team. That should give us every encouragement to give this Bill a Second Reading, and I wish it well.

Lord Alexander of Weedon: My Lords, I, too, warmly welcome the central thrust of this Bill to create a single, powerful regulator for financial services. For three years I served part-time as deputy chairman of its predecessor, the Securities and Investment Board, with the acronym SIB. The work of the SIB, which was well led by Sir Andrew Large, was undoubtedly valuable in strengthening consumer protection. A notable illustration was the way in which it grasped the issue of pensions mis-selling. The old SIB was continually hampered by the split of regulatory functions between itself as the leading regulator and the so-called SROs as second tier regulators.
	The compromise between statutory and practitioner regulation which was thought politically necessary at the time of the Financial Services Act 1986 proved to be badly flawed. In our experience, it led to delay, extra expense and a lack of clarity over the boundaries of jurisdiction between different regulators. It meant that no single authority had available to it a full range of powers to police the financial services industry. This in turn led to a jostling for position among regulators, all eager to improve their own standing and image. The potential for regulatory arbitrage was simply inherent in the system.
	It was therefore bold, but right, for the Government to grasp this as a key issue very soon after they took office. The prompt decision to create a single FSA and, in spite of its lack of any visible statutory underpinning, to ask it to take up work immediately was both courageous and necessary. It was also wise to ask Howard Davies, with his remarkable abilities, to become the first chairman. Most of those working in the financial services industry at the time believed that change along these lines was necessary. They knew that it was in the wind but, until then, they had no idea if or when it would come. The risk of demoralisation and the loss of good staff was very real. Therefore, the Chancellor's prompt action to clarify the situation was important.
	I also believe that the processes which led to some little time passing before the Bill came to Parliament were very sensible. They have been an object lesson in pre-legislative scrutiny which should give us enhanced confidence in what is a very important process for improving future legislation. There was initial, wide-ranging consultation. There was then the most valuable scrutiny by the committee chaired by the noble Lord, Lord Burns, completed in an astonishingly short space of time. The staff of the FSA have also, in my experience, both listened and been tireless and patient in seeking to explain its proposals.
	At the pre-legislative stage, the Delegated Powers and Deregulation Committee--I thank the noble Lord, Lord McIntosh of Haringey, on behalf of the committee for his kind words about us--found some points of real concern. I much welcome the support that we received both from the Burns committee and the changes that the Government have made in the Bill to meet those anxieties. We thought it essential that there should be appropriate separation of functions within the FSA between those responsible for bringing any disciplinary proceedings and the body that would adjudicate on such proceedings. We asked for this to be made plain on the face of the legislation, and it is good to see that this has been done. In the light of the importance of the powers granted to the FSA and its ability to make regulations, we thought that it should be obliged to submit an annual report to Parliament outlining its exercise of the rule-making powers. That recommendation has also been adopted.
	However, there was one further recommendation that we made to which I personally attached very great importance. This was the suggestion that people potentially affected by FSA rulings should be able to seek advance guidance enabling them to know that the action they proposed to take did not contravene the FSA rules. I came across such an advance guidance procedure when I was chairman of the Takeover Panel, and I found it impressive. Indeed, I saw it as fundamental to ensuring the smooth conduct of takeovers and as an issue of fairness to responsible practitioners. It was valuable for everyone to have an advance resolution of particular issues to keep the train on the rails rather than the more traditional action of picking up the pieces after an accident.
	I recognise that it would be logistically difficult for the FSA to be obliged to respond to every request for guidance on individual issues, but I very much welcome the fact that the FSA is given power in the Bill to give guidance of this nature. If it is given and followed, it will, as I understand it, provide a party with a "safe harbour" defence if its conduct is challenged at a later stage. I would expect and hope that the FSA will be alert to ensure that this power is exercised wherever reasonably possible, particularly in situations where providers of financial services are seeking to innovate. Honest practitioners are entitled to this help.
	I should like to add a few words to what has been said on the suggestion that the FSA should have an additional objective of promoting competition. I am personally rather doubtful. For the reasons given by my noble friend Lord Saatchi, it is obviously valuable that it should be required to have in mind both the desirability of innovation and the promotion of competition when seeking to fulfil its statutory objectives, but ultimately the protection of consumers and the public should dominate over such considerations.
	The pressures on the providers of financial services are intense. They are owned by shareholders whose fundamental interest is simply in the bottom line and the share price, and who, for the most part, are seriously indifferent to other issues which, in other areas of life, would be regarded as part of the serious responsibility of what is termed "ownership". The fund-managing institutions do not generally show any interest in stakeholders in the company other than in shareholders; they show no interest in the employees of the company, its policies in the community or the value for money that it gives to its customers. This narrow focus is perhaps sadly inevitable where some of the institutions have themselves only a mixed track record and are under pressure from pension funds to improve short-term performance. It means that the so-called "owners" of the company are not watchful to ensure consumer protection. As I mentioned, through the past decade we have seen the problems caused by pension mis-selling. Already, as the respected Institute of Fiscal Studies has recently pointed out, there is anecdotal evidence of mis-selling of ISAs, which are a crucial part of the long-term savings market for more and more people.
	Against this background of the need for consumer protection, I do not think that anything should be done to divert the FSA from the clarity of its current objectives. It is right that it should take competitiveness into account in reaching its decisions; but, ultimately, it must have the confidence that the protection of the public is firmly and unequivocally at the forefront of its work.
	I am conscious, too, that the Bill has wide rule-making powers, some of which are new since the legislative scrutiny process took place. It is welcome to me that a careful procedure has now been set out by which the authority must consult on proposed rules and take account of all representations made to it. I see that as being valuable. But I also see it as a necessary and valuable discipline that it is provided that the rules cannot be made without a cost-benefit analysis.
	Other speakers have mentioned their concern that there will not be a separation of roles along the more usual lines within corporate governance and a separate chairman and chief executive. This reflects an understandable concern to ensure that there are appropriate checks and balances in a very powerful organisation. I know Howard Davies to be both able and robust, as well as--and this is very important--fair and balanced. But we are legislating for the future. No one can predict how future chairmen may react to market pressures. In the event of a scandal, we can be sure that there will be immense pressure from government and from the media to seek prompt and urgent action. As we have all occasionally seen, this can sometimes carry the risk of the danger of a witch-hunt. The market needs reassurance that there is someone who can stand back as a brake on an over-aggressive regulatory action in that kind of situation. At the very least, perhaps it would be sensible to make specific provision in the Bill so that the roles of chairman and chief executive could be split in the future. Perhaps it would also be sensible to provide for a post of non-executive vice chairman who could give wise advice, standing back somewhat from the heat of the internal pressures on the FSA management. I believe that change along those lines would meet anxieties, give valuable reassurance to the City and give appropriate flexibility for the future.
	Like my noble friend Lord Saatchi, I accept that immunity should be granted to the FSA. I now understand that I had this when I served on the SIB, although I must say that I was not even conscious of it at the time; nor do I think that it ever affected any decisions that we took. However, be that as it may, I share my noble friend's view that we should strengthen and clarify the role of the investigator. I also share his view that we should strengthen the accountability of the FSA to Parliament, not only for its rule-making, which is already in the Bill, but generally across the board.
	In conclusion, like others, I find myself bemused that we are already promised a very large number of amendments to the Bill. As it was only very recently in the other place, I should have thought that some people there would regard it as discourteous that they spent so long debating clauses to a Bill when the Government were already planning to introduce so many amendments in this House. But, overall, I do not wish to carp because I welcome the Bill. It is vital to have a strong, single regulator whose role is to protect members of the public in crucial areas of their affairs. I applaud the process of pre-legislative scrutiny and the amendments that have been made to the Bill to improve the way in which regulations are made and to ensure greater fairness in proceedings taken against people where such proceedings can affect or destroy their livelihood. It is an incomparably better way of legislating than was the Financial Services Act 1986. I hope that in that spirit it will be capable of still further thoughtful improvement as it passes through this House.

Lord Borrie: My Lords, first, I should declare an interest as a non-executive director of the Woolwich plc, a provider of financial services.
	As others have said, this is one of the most thoroughly debated and scrutinised Bills in recent times. It is massive and detailed. I welcome it particularly because it has a one-stop shop approach to regulation. I heartily agree with the noble Lord, Lord Alexander of Weedon, who has just finished speaking, that it is a big improvement on the Financial Services Act 1986 where different bits of the whole picture were put into separate boxes and logic was considerably tempered by the perceived need at the time for a large degree of self-regulation and practitioner-based regulation.
	I hope that the simple and essential clarity of the role of the single regulator, the Financial Services Authority, is not undermined as the Bill goes through the House of Lords by any weakening of the robust powers in the Bill, especially enforcement powers--both civil and criminal--which I believe that the authority must have if it is to do its job properly. I also hope that the Government will seriously consider whether the Bill's scope might be widened just a little further than it is at the moment by adding all kinds of mortgages--as the noble Lord, Lord Taverne, has pointed out--including second mortgages, and advice on mortgages. They should be listed among the regulated activities in Schedule 2 to the Bill. As other noble Lords have said, I trust that my noble friend Lord Lipsey, who has yet to speak in the debate, will be listened to with great interest on the subject of including long-term care insurances.
	When the late Professor Gower conducted his one-man inquiry on behalf of the then government prior to the Financial Services Act 1986, he said that legislation should not try to protect consumers from their own folly but should try to protect them from being made fools of. Consumer protection is one of the Bill's four regulatory objectives. However, in Clause 5 the authority must have regard to the general principle--these words are important--that,
	"consumers should take responsibility for their"
	own actions. For ordinary non-business consumers who buy goods, the crude caveat emptor that once prevailed more than a century ago disappeared a long time ago. If I tabled an amendment to the Bill for the word "reasonable" to be inserted before the word "responsibility" in Clause 5, I might get support from the noble Lord, Lord Taverne, and, indeed, from my noble friend Lord Haskel, who also mentioned that point.
	Since the original draft of the Bill, the Government have added provision for two useful advisory bodies which the authority must consult--a practitioner panel and a consumer panel. On the consumer panel, as it currently exists on a non-statutory basis, it is natural that well-known consumer organisations, such as the National Consumer Council and the Consumers' Association are represented, along with trading standards officers of local authorities. It is also appropriate, when the authority is working hard at the present time on consumer advisory services and its consumer helpline, that the consumer panel includes people from the field of money and debt advice.
	The Money Advice Trust, of which I am the honorary President, has a key role in co-ordinating money and debt advice throughout the country. Recent research it commissioned, financed by Barclays Bank, has now concluded that the quality of such independent advice is high, but--noble Lords will not be surprised to hear--finance and funding are fragile. I would argue--I hope that noble Lords would agree with this--that lenders benefit from good independent advice to debtors (debtors also benefit from this) and ought to give more support to such advice.
	When the consumer panel is set up on a statutory basis, the authority might consider throwing its net a little wider. It sometimes strikes me that bodies of various kinds are a little lazy when it comes to appointing people. I was a little surprised that there does not appear to be anyone from the citizens advice bureaux, whom we all know are of great importance. I should have thought it would be useful to have someone from the field of education. The Financial Services Authority is running a conference next month to promote personal finance in the context of numeracy in primary school classrooms in the United Kingdom. Adult and child education in money matters are equally vital if the regulatory objective of public awareness is to be adequately pursued.
	A particular topic embedded in the Bill that I want to say a few more words about is the single ombudsman scheme. The regulators are being brought together in a single authority and the ombudsman schemes are being brought together in a single authority. It is a great improvement on the mix of eight separate ombudsman and arbitration schemes that have been available in recent times for financial services. The first private sector ombudsman scheme in the country for insurance disputes was set up as long ago as 1981. As with the later banking ombudsman scheme, it was voluntary but widely supported and funded by the industry itself in growing recognition of the need to maintain and improve consumer confidence in the industry.
	A number of safeguards were introduced in order to ensure that the old maxim of,
	"he who pays the piper calls the tune"
	did not apply. Therefore an independent board or council was set up to support the independent ombudsman who would determine disputes and have power to award compensation up to a certain sum. The Bill in Clauses 219 to 228 and Schedule 16 builds on these principles by creating, again with industry funding, an independent body corporate to operate the scheme and to appoint a panel of independent people to be the actual ombudsmen settling disputes.
	I greatly welcome the appointment of Mr Walter Merricks, the former insurance ombudsman, as the first financial services chief ombudsman. I am glad that the scheme is not at present--although there is provision for this in the Bill--allowing for the possibility of charging costs to the consumer. My only query is whether, given the breadth of the scheme's remit across the whole field of financial services of all kinds, there will be adequate co-ordination of ombudsmen decisions to ensure consistency and fairness as between one person and another in decision-making.
	My final topic--this has been raised by others--is whether the promotion of competition should be among the regulatory objectives. The Utilities Bill, now going through the other place, states that its primary objective is the protection of the consumer, but adds,
	"wherever appropriate, by promoting effective competition".
	That Bill also gives jurisdiction to promote competition not only to the Office of Fair Trading but also to the various separate industry regulators, such as Oftel and others. In this Bill the promotion of competition is somewhat downgraded because it is mentioned only as one of quite a number of various factors that the authority ought to have regard to in discharging its functions. Therefore, there are two Bills going through Parliament at roughly the same time, with different wording as to the relationship between consumer protection and the promotion of competition. Other noble Lords have expressed stronger views. I have only one question to the Minister at this stage: is there a difference in policy behind the difference in wording?
	The special competition scrutiny provisions in Clauses 150 to 155 have their origin in the scrutiny powers given to the Office of Fair Trading in the Financial Services Act 1986. That was a good idea then and it is a good idea now, because over-enthusiastic regulation--for example, raising the qualifications required to provide certain financial services so high that competition is unduly restricted, allowing few people to engage in those services--may be to the disbenefit of consumers. I welcome the improvement in this Bill over the 1986 Act whereby the Office of Fair Trading's scrutiny report on any anti-competitive effects of rules or guidance from the authority is now to go not to Ministers, but to the competition commission; and the role of the Government--or the Treasury--is simply to direct the authority to follow the final ruling of the competition commission.
	That is in effect a depoliticisation of the matter. It is in line with the action taken by the present Government within hours of coming to power on 2nd May 1997, whereby the Monetary Policy Committee of the Bank of England took over tasks previously held to be those of the Chancellor. It is in line also with what the Government have said they intend in relation to merger cases on the matter of the relationship between the competition authorities and Ministers.
	However, returning to the Bill, while Ministers are intended to keep out of the matter by and large, Clause 154(3) contains an exception described as "exceptional circumstances". I did not know what that meant, but I was helped by the Explanatory Notes which state at page 62 that "exceptional circumstances" refers to cases involving,
	"a grave risk to the financial system".
	If that is all it means, I am not really worried. If such circumstances arise, then it is fair enough to say that the Treasury must get hold of the problem. But is that all that it means? I support the Second Reading of the Bill.

Lord Fraser of Carmyllie: My Lords, like other noble Lords I have registered interests to declare. I am a director of the recognised investment exchanges, the London Metal Exchange and the International Petroleum Exchange. For the purposes of the Bill it is of greatest interest to me that I had the privilege to serve under the noble Lord, Lord Burns, on the Joint Committee. It was an extremely worthwhile and constructive exercise. I hope the Government Front Bench will recognise the contribution from this side of the House in that committee, not particularly from myself but from my two erstwhile colleagues, Viscount Trenchard and Lord Poole, who I regret my hereditary colleagues did not see fit to elect to assist us with the Bill. I hope it was understood from the contributions made then that we have absolutely no purpose in either wrecking or seeking to delay the Bill, but only to see that its detail is as correct as possible. I am most grateful to the noble Lord, Lord Burns, for the way in which he conducted the committee.
	The Bill seems a particularly apposite one for your Lordships to consider, because there is an enormous degree of detail to be followed through and, frankly, some of it is of little popular or political appeal. Nevertheless, it is of great import to what is probably the largest industry in the United Kingdom. While I acknowledge the primacy of the City of London in financial matters, I was grateful to the Minister for the emphasis he gave to the point that the Bill does not apply exclusively to the City of London, but stretches beyond the border to other parts of England. While London may have been supreme, an interesting counterflow has been developing as recently as today, indicating that some financial services may find their centres beyond the City.
	It seems that we have something of a paradox to resolve, to which we need to give detailed scrutiny. As my noble friend Lord Saatchi indicated, that is both desirable and necessary. At the same time, we need to understand that we are operating in such fast-moving circumstances that some of the detail which we scrutinise as best we can may almost be outmoded before the Financial Services Authority begins to exercise its full regulatory functions once the Bill reaches the statute book. Notwithstanding that risk, it still seems appropriate that we should give the Bill as careful scrutiny as we can. As the noble Lord, Lord Taverne, indicated, it seems to point to the fact that at this stage we should be looking to the big issues which will continue irrespective of changes in financial services.
	The major issue I see is that of competitiveness. I am sorry that my noble friend Lord Alexander of Weedon is not in his place at the moment, because he argued that the position was about right, which was surprisingly more in line with what the noble Lord, Lord Borrie, has just said on the issue. I hope that the noble Lord, Lord Burns, does not believe that I am unacceptably breaking ranks with the conclusions of the Joint Committee when I say that I wholly accept that the Government have improved what they have to say about competitiveness in Clause 2, but I still have some difficulty with the structure, the divisions and the emphasis of Clause 2.
	I understand readily enough the desirability of avoiding any misunderstanding that the FSA should in future effectively be the competition authority. There is no point in imposing such a duty upon it. I strongly believe that good regulation is of itself good for business. I can think of one particular example in which I have been involved where, with the application of a stern degree of regulation, far from the markets in London being damaged, they were positively enhanced.
	I believe that the FSA should be under a greater obligation than simply, as under Clause 2, to "have regard to" the various issues of competitiveness and innovation set out in paragraphs (d), (e), (f) and (g). I hope that the Government may yet be persuaded to reconsider the balance before the Bill completes its passage.
	As I said, my concern is not about the present arrangement regarding anti-competitiveness. There is absolutely no desire and there can be no purpose in trying to give the FSA the power to look to what are now within our domestic law Articles 85 and 86 to examine what is anti-competitive. From those in the FSA with whom I have had some contact, it would seem that if people in the City of London believe that those operating from Canary Wharf will be prepared to protect their traditional dominance simply because they are dominant and that is the tradition, they had better think again. I anticipate that, given his powers under Chapter III of the Bill, the director-general will in fact have a rather light task.
	I am more concerned that at some point in the future the Financial Services Authority will--as my noble friend Lord Hunt put it--tick some boxes; it will say, "In pursuit of our objectives, the market is confident, the public are aware, the consumer is protected and financial crime is down. We have achieved our objectives accordingly". What concerns me is that the next morning, the City or Canary Wharf may wake up to discover that large parts of our financial services business have simply disappeared to Germany, Geneva or elsewhere.
	I recognise that the reason why LIFFE lost its "Bund" contract owed more to the nature of the way in which it was traded than any regulatory burdens. Nevertheless, the lesson that we ought to derive from that incident is that things can happen extraordinarily fast in financial services. If the FSA is not aware and light on its feet with regard to the competitiveness that can arise in Europe or even globally, as my noble friend Lord Saatchi emphasised, we may meet all these objectives but at the same time find that the size of our financial services industry has dramatically declined. In those circumstances, I very much hope that we can consider the matter more carefully.
	The second big issue is undoubtedly that of market abuse. It was the Minister who said in opening the debate that what the Government are proposing to include on market abuse is to be laid on top of the firm foundations of the criminal law. I wish that I could be absolutely confident that the criminal law does indeed rest on firm foundations. Points have been made about both insider trading and market manipulation being crimes. However, it occurs to me that much of what is considered to be market abuse might also be considered to be, certainly as a Scots lawyer would see it, fraud--that is to say, bringing about some definite practical result by means of false pretences.
	If one looks to the provisions of the clause dealing with market abuse, ones sees in subsection (2)(b) something which, to a Scots lawyer, looks remarkably like fraud. Clause 109(2)(b) states:
	"the behaviour is likely to give a regular user of the market a false or misleading impression as to the supply of, or demand for, or as to the price or value of, investments of the kind in question".
	The noble Lord, Lord Burns, had another point to make about that provision. But it would seem to me that if there were any intent behind that behaviour to give a false or misleading impression, it might amount to fraud.
	I have been reading with considerable interest consultation paper 155 issued by the Law Commission in March 1999 in which it looked at the issue of crimes of dishonesty and fraud. In that document the Law Commission appears to come down against a general crime of dishonesty or deception. However, in that document, on the side of a general crime of dishonesty, both the noble and learned Lords, Lord Goff and Lord Donaldson, are quoted making particular reference to the law of Scotland. I understand that that cannot be resolved before the Bill completes its passage through this House. However, we would be better able to characterise market abuse and understand its extent if we had at least some indication of whether the Government broadly approve of the idea of a single crime of dishonesty or a single crime of fraud. That would enable us to see better whether indeed that activity of market abuse was really criminal, civil or something of a muddle.
	The evidence we received, which was alarming, was that the conduct behind market abuse fell along a continuum. At one end it was undoubtedly criminal and at the far end it was undoubtedly civil. Somewhere along the line it shifted. The difficulty was that one would not know until after the event when it was civil and when it was criminal. The Government have taken some sensible steps to avoid much of the risk that might emerge in such circumstances by, first, allowing for legal aid--I meant to say "legal assistance": I wish it were legal aid--and, secondly, allowing for a prohibition against self-incrimination. That is desirable, but as I look to the front of the Bill I see that it states:
	"The Lord McIntosh of Haringey has made the following statement under section 19(1)(a) of the Human Rights Act 1998:
	In my view the provisions of the Financial Services and Markets Bill are compatible with the Convention rights".
	Perhaps I may say to the noble Lord that he is indeed a brave Minister.
	What concerns me most about the relationship between the Bill and the convention is not so much what is on the face of the Bill--namely, what the Financial Services Authority may do, what powers are given to it and the way in which a tribunal and appeal arrangements are set up. That seems to have moved a long way along the road to a proper conclusion. But if I understand the real scheme of things, at least the six recognised investment exchanges in London are assumed to take on board the primary role of seeking out market abuse and dealing with it. In such circumstances, the London Metal Exchange or the International Petroleum Exchange are to be expected by the FSA to include within their rules provisions that will mirror those relating to market abuse within the Bill. In such circumstances, if there are problems of compliance with the convention of human rights, those problems will not emerge directly in relation to the Financial Services Authority but will emerge in relation to the exercise of powers by any one of the six RIEs. I should be grateful if the Minister would confirm my understanding of the structure. If it is correct, it may be important to ensure that each one of those RIEs understands from primary legislation just exactly what will be required of them in the future.
	I recollect accurately that, when we considered the Bill in the Joint Committee, some two to three weeks before we finished another 150 clauses were given to us for our scrutiny. We simply ran out of steam at that point and concluded that we would not attempt to give them the same degree of scrutiny that we had given to others. I conclude by saying to the Minister that when we reach such clauses, a number of which have appeared in legislation in the past, I hope he will not take it amiss if we scrutinise them in a probing fashion just so that we better understand them. With that reservation, I warmly welcome the Second Reading of the Bill and very much hope that we can conclude proceedings on it constructively before the summer is up.

Lord Sharman: My Lords, like other noble Lords, I have an interest to declare. For many years I practised as a partner in a firm of accountants which provided a great many services to the financial services industry. I remain a paid adviser to that firm.
	The Bill, which as we have heard has already been much scrutinised, much debated and much discussed outside the House, provides us with a great opportunity. The creation of a single regulator for the financial services industry provides us with a sorely needed opportunity to obtain clarity and simplicity and to reduce costs. In approaching the creation of the regulator, the process must be open and transparent, it must meet the needs of our market places and it must meet the needs of our consumers. We should proceed not on the basis that this is wholly desirable but that there will be critics of the Bill outside the House. Those noble Lords who surf the web will have become aware last week of a website which had a very short duration. It was entitled "Not the FSA". It had some interesting commentary on the Bill. I shall say nothing further except that that serves to illustrate that there will be critics. We cannot afford to fail with this Bill. It will provide the regulatory regime which will be the financial driver for UK financial markets for the next generation. Those markets are mobile. If we get it wrong, they will move. There is no question about that. When we consider the issue of regulation it is wise to bear in mind that we are not regulating some recently privatised utility or group of utilities with near-monopolistic powers. That is a different situation. With great respect to the noble Lord, Lord Borrie, it is not the policy that is different, but the circumstances.
	I am concerned that what we are doing is leading to the "battle fatigue" referred to by the noble Lord, Lord Taverne. This piece of legislation does substantially more than merely consolidate a number of regulators into a single regulator. Much in the Bill is new. Industry and consumers will need time to absorb it. It will need to be flexible and technology neutral. We have heard references to what might be described as the "e factor" and the speed at which the market-places are changing. If we add to that other initiatives, such as Cruickshank and the e-commerce Bill that will shortly be debated in this House, an environment of real battle fatigue could be created in the market-place. We must try not to add to that.
	I, too, have significant difficulties with three issues in the Bill. The first relates to the structure and arrangements at the top end, in particular the division, or lack of division, of responsibilities between chairman and chief executive. We have heard explanations as to why that is desirable. I have read carefully the position of the FSA. I, too, should like to pay tribute to the oft-quoted and commented on qualities of Mr Howard Davies. I should not like my remarks to be taken in any way as a criticism of him, but the issue of the separation of duties at the top of an organisation is all about checks and balances. It is not purely about accounting to shareholders. It is about making sure that there are two sets of responsibilities, and one can provide a check on the other. We are creating within this authority a huge concentration of power. Confidence in it is absolutely essential. The market-place must look at it and be satisfied that the checks and balances are there.
	By way of explanation, I might add that "full-time" does not mean that one has to be chairman and chief executive. I can think of a number of examples of organisations where there are full-time chairmen and full-time chief executives. If the organisation is big enough, that can be justified.
	I would also draw attention to stakeholders, who are as important as shareholders. That is one of the reasons why we worry about checks and balances. It seems that there are a significant number of stakeholders with an interest in the Financial Services Authority, and separation of the duties of chairman and chief executive would go a long way towards making stakeholders more comfortable with the position.
	The second issue is that of mortgages. I agree that it is desirable that mortgages should be brought within the scope of this regulation. However, I have a question as to whether the approach taken is the right one. To regulate products and providers but not intermediaries seems to be a weakness. I, too, feel that a mortgage is a mortgage is a mortgage, whether it is a first charge or a second charge mortgage. We should not worry terribly about what use the money is put to. It is a charge on a property and it is secured. If it is right to regulate it, it is right to regulate the whole of it, not part of it. There are some 11 million mortgages outstanding in this country. It is a huge area needing regulation. We shall need to revisit this significant issue.
	Finally, in common with other noble Lords I am concerned about the requirement to encourage competition, to paraphrase remarks made. I differ from the noble Lord, Lord Borrie, on this issue. As I said, what we have here is a difference in circumstance, not of policy. We are not dealing with a recently privatised utility. We are dealing with free markets which have operated for hundreds of years. How, then, are we to encourage competition? I fear that there have been cases in the past where that has not happened. It is not a simple issue. I simply do not understand how it can be done in certain circumstances. What happens in a market where there is worry about the amount of competition and where the entry barriers are too high, perhaps for good regulatory purposes? Do we lower those barriers to enable more people to come in and create better competition? I think not. Protection of the consumer is paramount.
	To summarise, the regulation was sorely in need of overhaul, and the regulatory opportunity has been addressed. It is, as I said, a wonderful opportunity for clarity, simplicity and a reduced cost base. But let us bear in mind that this is a first--I hesitate to call it an experiment. This will be the only major financial market in which there will be an integrated regulator. For the absence of doubt, I do not regard Norway or Sweden as major financial markets. Market confidence will be achieved if we can avoid too much battle fatigue. Accountability is absolutely essential. This entity must be accountable to Parliament for all its activities.
	The FSA faces some real challenges. Implementation will not be easy. Managing the change from nine to one, maintaining staff morale and ensuring the high levels of performance that are vital for the future, and getting the best from the recruiting market, will be a real challenge. The quest for consistency, bringing some areas up to the very high standards of others, will require significant improvement in certain areas. I believe that there will be a long period of change. However, I am confident that under Mr Davies's leadership that can be achieved.
	This is a great opportunity. However, like many great opportunities, it is not without risk. During the passage of the Bill through this House, we must seek to ensure that the consequences of those risks are kept to a minimum in what is a key asset of this country: our well-established and very successful financial markets.

Lord Ahmed: My Lords, I do not speak as a former Minister, banker, adviser or member of a finance committee, but as a consumer, customer and service user. I welcome the Government's proposals in the Bill. However, they do not go far enough. Whereas the Bill could unify and codify the entire legislation affecting all financial services, it excludes two vital elements: the Banking Ombudsman, and mortgages and advice to the major lending arena; namely, the high street banks.
	One has to ask oneself: what is the reason behind that exclusion? I take great pleasure in taking an historical perspective in this House. I am reminded of Magna Carta, which was an attempt to protect all the King's subjects from a king who might be too forceful or barons who might be too powerful. Unfortunately, the high street banks today are what the barons were in medieval times, for they force us into financial serfdom. I consider it my duty to ensure that Clause 39 of the Bill enables Magna Carta to remain valid. Magna Carta states that,
	"No free man shall be taken or imprisoned or dispossessed, or outlawed or exiled, or in any way destroyed, nor will we go upon him, nor will we send against him except by the lawful judgement of his peers or by the law of the land".
	Magna Carta establishes that no person, not even the King, is above the law. Today, however, it seems that banks are above the law and everybody who is made redundant, bankrupt or dispossessed is financially and socially destroyed. Most victims suffer serious health and family problems, and suicides are not uncommon.
	The current omissions from the Bill make sure that the FSA provides first aid but it does not stop the terminal disease called global capitalism. If we had a statutory code of practice to regulate lending and protect the borrower as much as the lender, we would have a new Magna Carta to protect the freedom of the individual. Instead, our democratic freedom is threatened by debt, including the debt owned by lending institutions. These debts create a new underclass as evidenced by liquidators' sales and the auctioning of repossessed properties which we see every day. The victims of predatory actions by banks are the new underclass in our society.
	Noble Lords may recall that at the beginning of the year I invited them to attend meetings of the Forum for Stable Currencies that I host every three weeks in this House. At its previous meeting, Gill Hankey of the Bankruptcy Advisory Service said that 90 to 95 per cent of all bankrupts were innocent but all of them were victims of lending institutions. Her organisation is one of about half a dozen all of which have harrowing tales to tell. This Bill, therefore, must be put right, not by more than 500 amendments but by the inclusion of all banks and lending institutions and the Banking Ombudsman. If we do not get the Bill right, the underclass of the unemployed, the homeless, the bankrupts and the victims of banks will grow enormously, year after year, for the accumulation of personal, corporate and national debt strangles the essence of people's lives and freedom.
	We must strive for a new form of economic democracy. This can be achieved by a Bill that regulates lending and borrowing in a way that is economically sustainable and mathematically balanced. Everybody strives for exponential profits from trading and lending, but nobody looks at personal, corporate and national indebtedness world-wide, which is equally exponential. Economic democracy will not be socialistic, nor should it cohabit with the worst excesses of capitalism. New Labour is a modernising force, and it owes that to its electorate. But the Bill as it stands does not go far enough in its obligation to ensure that ordinary hard-working people all over the country can exercise their individual freedom in a liberal democracy free from the harshness of the debt problem which the lending institutions continue to make worse.
	I am aware of a class action against the Bank of England for its failure to regulate banks. I trust we shall ensure that the FSA becomes a regulatory body in which we can all have trust. I commend the Bill to noble Lords as an opportunity to prove that this House delivers what it is meant to do; namely, that it debates matters with the long-term perspective in mind for the benefit of all citizens.

Lord Bagri: My Lords, first I declare a direct interest in the Financial Services and Markets Bill. I am chairman of an authorised investment services firm and am also privileged to be chairman of the London Metal Exchange, which is by far the largest metals futures market in the world. The LME is highly successful and pre-eminent in the world of non-ferrous metals. Every day its markets provide prices that are relied upon globally and its contracts help to reduce the risks of future price uncertainty. It is unique in terms of its influence and relevance to underlying trade and industry. The LME is one of the core organisations which contributes to the enormous success of the City of London. The contribution of the financial services industry to the economy of this country and its importance to Britain's role in the global economic and financial order is well recognised. As a recognised investment exchange, the LME has substantial regulatory responsibilities.
	I am absolutely convinced that good regulation is vital for good business. Apart from encouraging the confidence of investors and users of the markets, thereby stimulating demand and turnover, good regulation fosters greater assurance about the creditworthiness of counterparties, reduces systemic risks and creates fair markets in which skilful and efficient business can be rewarded. It is on that basis that I extend a broad welcome to the Bill. Reform of the existing Financial Services Act is long overdue. I need not dwell on the problems and deficiencies of that regime caused by the plethora of regulatory bodies and layers of regulation which lack coherence and consistency.
	The simplified regulatory structure and the single regulator introduced by this Bill should, if implemented sensibly and with proper accountability, bring significant benefits both to the regulated community and to its customers. It is vitally important that the Financial Services Authority is put on a firm legal footing as soon as possible and that the new regulatory framework is introduced speedily. Staff morale and turnover at the FSA have not been helped by the continuing delay and uncertainty. I do not in any way suggest that that reduces the scrutiny to which we should subject the Bill both during debate and in Committee. The Bill introduces very complex and far-reaching legislation which needs careful scrutiny. There is a great abundance of knowledge and experience on this subject in this House. I hope that we can draw upon that expertise to improve the Bill and facilitate its passage, bearing in mind that it is not in the interests of the financial services industry that the current uncertainty continues any longer than necessary.
	A great deal of scrutiny has already taken place. I too join in the tribute paid to the noble Lord, Lord Burns, and other Members of the Joint Committee from this House and the other place who scrutinised the Bill in draft. As part of its work, the Joint Committee received representations and took evidence from a wide cross-section of the financial services industry and other parties. As a result of that scrutiny, the Government have introduced a large number of amendments which have significantly improved the Bill. However, a number of issues raised by the committee chaired by the noble Lord, Lord Burns, have yet to be adequately dealt with.
	While I am convinced that good regulation is good for business, it must be proportionate and tailored to the type of business that is being regulated. The concept of a single regulator has a lot to commend itself but it also presents an enormous challenge. We must be alert to the dangers of allowing an over-cautious approach to retail markets and stifling the wholesale markets with over-burdensome oversight. The onus must always be on the regulator to justify the specific need for and cost of regulation in terms of the benefits delivered. Technological developments and the Internet have enormously increased the scope for more and more business to migrate to over-the-counter markets both within and outside the United Kingdom. When regulating, we must not lose sight of this reality.
	The proposed remit of the Financial Services Authority covers probably far more areas than any other single financial markets regulator in the world. It is, therefore, particularly important for a body as large and powerful as this that the checks and balances to ensure proportionate and cost-effective regulation are enshrined in the legislation at the outset.
	I hope to have the opportunity to participate during the Committee stage of the Bill, so I shall confine myself today to some broad points of principle. In view of the size, scope and powers of the FSA, and taking account of experience to date, I believe that there is a need for greater accountability of the FSA. Various possibilities have been suggested. Whatever method or combination of methods is adopted ultimately, the objective should be to encourage the FSA to be more accountable and amenable to scrutiny.
	It has been suggested in some quarters that the FSA would be encouraged to act in a balanced way if the exemptions from immunity from suit, both for the FSA and its staff, were extended to cover unreasonable or reckless action. These exemptions would be in addition to the exemption for action taken in bad faith which is already contained in the Bill. I can understand why immunity causes some concerns, but I have no doubt that the balance is correctly drawn in the Bill. It is vitally important for the good of the industry as a whole and the reputation of the United Kingdom as a well-regulated market that the regulators are not deterred from taking appropriate regulatory action when necessary. Extending the exemptions from immunity to include unreasonableness and recklessness would be likely to result in a large increase in legal actions with little purpose other than to deter the regulators. Justice is assured through recourse to judicial review.
	I referred earlier to the commercial success of the LME and the City of London in general and to the importance of ensuring that the required level of regulation is implemented in the most cost-effective manner, and bearing in mind issues of international competitiveness. Having now seen the FSA operating de facto for some two years it is my view that more needs to be done to encourage the FSA to take into account the effects of its actions on competitiveness. We must do all we can to overcome the regulatory moral hazard problem that the perceived risk to regulators is under-regulation. Over-regulation has little downside for the regulators although it has substantial and negative effects both on the regulated industry and its customers.
	There has also been a worrying tendency for the FSA to involve itself in the non-regulatory commercial issues of the recognised investment exchanges. The Bill clearly restricts the FSA's role to regulation of financial services business. However, the FSA appears to take the view that it does have jurisdiction over commercial issues because the financial well-being of an exchange might influence whether it is able to carry out its regulatory functions. It is vitally important that the functions of the FSA are confined to regulatory matters. It is the role of the boards of companies and exchanges to take commercial decisions and to guide their commercial direction so long as regulatory obligations are met. Commercial expertise lies in the boards not in the FSA. The limitation of the FSA's powers in the Bill to regulatory functions is implicit. Perhaps they need to be made explicit on the face of the Bill. In addition, a clear understanding of the respective regulatory roles of the FSA and the RIEs would be aided by mutually agreed memoranda of understanding.
	Finally, perhaps I may say a few words on the breadth and scope of the Bill in relation to the market abuse provisions. It is essential that the market abuse regime extends to non-authorised persons and to activities outside the United Kingdom. Let me briefly explain why by reference to the Sumitomo-Hamanaka manipulation of the LME's copper market in 1996. Sumitomo was not and never has been a member of the LME. The LME could not, therefore, take regulatory action against Sumitomo even though it traded in millions of tonnes of copper. Nor could the Securities and Investments Board (SIB, as it was then known) under the existing legislation. This is clearly a loophole in the legislation designed to protect the integrity of the UK's investment exchange markets. I therefore wholeheartedly commend the extension of the scope of the market abuse regime to cover non-authorised persons, no matter where situated.
	By and large, the FSA has started well under the able chairmanship of Mr Howard Davies. The Financial Services and Markets Bill is an extremely important and welcome piece of legislation. There is still work to be done in Committee. It is essential for the continued success of the financial services industry that the new regulatory regime is tailored to the needs of the industry and its customers, with proper checks and balances, and is introduced without undue delay after constructive further scrutiny.

Lord Lipsey: My Lords, I greet the Bill with a pang in my heart. The interest I have to declare is as a member of the board of one of the existing SROs, the Personal Investment Authority. It has provided me with much interest and much onerous work over the years. In that sense I am sorry that your Lordships' House will abolish it through this Bill. However, I go along with the existing consensus. I should be tempted to say that I have never seen such consensus in favour of a major piece of government legislation since the Child Support Agency Bill a number of years ago--but that might be liable to misunderstanding. It demonstrates one factor: that the devil in all these matters lies in the detail, and there will be enormous value in the detailed examination of this admirable Bill given by your Lordships' House over the weeks ahead.
	Before turning to my much canvassed special subject, having listened to the debate and having observed the progress of the Bill over a number of months, I wish to make one general point. The financial services industry was much concerned that the originally somewhat draconian disciplinary process laid down by the Financial Services Authority would be too onerous, unfair to individuals and infringe their human rights. I understand that concern. However, when considering the Bill we must never forget that investors, too, have human rights.
	Perhaps I may give noble Lords a true life example where the two conflict. I sat recently on the PIA's membership and disciplinary committee. Before us was an application from a man we shall call Mr Jones. Mr Jones was, and perhaps is, a forger. His game was signing off mortgage applications so that the money went not to the person to whom it should have gone but into his bank account. Mr Jones was caught, as tends to happen. But in most such cases the firm fires the guy and that is the end of the matter. When Mr Jones' application had come before the committee, we would simply have said, "Sorry, no forgers here", and he would have been out of the industry, as is quite right. One cannot have people who have committed serious forgery running about in the financial services industry.
	However, Mr Jones was a lucky fellow. His offence was so heinous that he was charged, and convicted. Under the Rehabilitation of Offenders Act his conviction was spent; and we were advised correctly by our lawyers that Mr Jones had to be allowed back into the industry. From reading his papers, I was not sure that he was a reformed character, but I hope that he is and that no one suffers as a result. In that case, the conflict between Mr Jones' human rights and the human rights of investors was resolved in favour of his human rights.
	That problem as regards the Rehabilitation of Offenders Act is under consideration. I hope that the matter will be resolved. However, the vital point that we should keep in mind is that this is all about balancing the rights of the industry and the competitiveness of the industry, and the rights of investors and the need to protect investors. We would be well advised to bear that balance in mind during our consideration of the Bill.
	I have never had the good fortune to receive so much support from noble Lords before I have even stood up and spoken! My argument seemed to go across the airwaves because no less than five noble Lords have mentioned the subject of long-term care insurance: the noble Lords, Lord Taverne, Lord Haskel, Lord Borrie, Lord Burns and Lord Faulkner.
	Here again we are in consensus land. There is consensus that these products should be regulated. They are insurance policies that can be taken out against decrepitude in old age. The salient point is that such policies are mostly taken out by older people who fear that they are going to go into a home and lose all their assets as a result of paying the fees. Sometimes they are taken out on the day that people go into the homes, in case they live for a very long time, and that in itself takes their money away. I was fortunate enough to serve on the Royal Commission on long-term care of the elderly, at which time there were 23,000 such policies, but many financial organisations are looking to enter this market because they see it as a boom territory for the future.
	The consensus is that these products should be regulated. That is what the industry wants. It does not want the market to be thrown open to cowboy operators who could bring these sensitive and delicate products into disrepute. The Personal Investment Authority wants to see regulation, and that was also the recommendation of the majority and minority reports of the Royal Commission on long-term care. We did not agree on anything much else, but we did agree that these products should be regulated. The excellent committee chaired by the noble Lord, Lord Burns, also recommended that they should be regulated. I have discussed this matter with the Financial Services Authority in recent weeks, and while it havered for a while, it came to the view that it wishes to be regulated for a variety of reasons, one of those being that it might be blamed if something goes wrong, and so it might as well have the power to do something about it.
	There is therefore a block of consensus, to which there is but one exception, and that is Her Majesty's Treasury, which officially proclaimed a few days ago that it was not persuaded of the case. I can truthfully say that I yield to nobody in my admiration for the Treasury--and it is not very difficult because there are not many admirers of the Treasury. I am an admirer and I have a book coming out on the Treasury next month--Viking, £20, since noble Lords ask! That book is generally a defence of the Treasury. It was described in one review as "the higher sycophancy". I was most grateful for that adjective. I am a fan of the Treasury, and often there are very good reasons why the Treasury says "no" when everybody else thinks it should self-evidently say "yes". However, although I have been knocking at this door for months, I cannot discover why it will not act on this matter.
	Old people are uniquely vulnerable. They may be considering buying such a product at the very moment when they are going into a home and feeling sick, when they have major worries. They will then have to consider financial issues. The products are very complicated and it is very difficult to understand quite when one can claim. You have to fail two or three activities of daily living like being able to feed yourself. Once you have bought one, you are locked in. You do not know whether or not you have bought the right policy until the day you claim, when, by definition, you will not be at your best, and you then find out whether the policy will be paid out. For all those reasons, such people are in grave need of protection.
	The case for wider mortgage protection has been argued this afternoon. Of all the products requiring a protection element, long-term care insurance is a much better candidate than mortgages, as the Government have partly conceded. That is not only my view, but that of Mr Howard Davies.
	I am bemused by the Treasury position. I am sure that the noble Lord, Lord McIntosh, will enlighten us when he replies to the debate. I hope that he will bring good news. However, he will know that some noble Lords consider it their duty to campaign as strongly as they can to persuade the Government of what they are as yet unpersuaded, so that this excellent Bill protects the people who will be most vulnerable if this change is not made.

Lord Rees: My Lords, I declare a small interest, since I have been a Member of Lloyd's, as a non-working Name, for many years, although I ceased to underwrite in 1997.
	I join other noble Lords in paying tribute to the noble Lord, Lord Burns, his committee for the remarkable work that they did in a very short space of time. Their conclusions may not attract absolute unanimity, but I am sure that we all have admired, and will admire when we come to the detailed analysis of the Bill, their sifting of the issues and the evidence they heard. I hope that it will simplify our task when we approach the Committee stage, because it will be a taxing and arduous period for us all. I hope that the Government realise the burdens that we shall be facing and will not press us unduly.
	May I also suggest, with some diffidence, that the Burns Committee could be used as a precedent in other cases where detailed technical legislation of considerable scope is introduced. There have been Green Papers, but nothing has been produced on quite the scale of that produced by the committee, of the noble Lord, Lord Burns, and it is a very useful precedent.
	The purpose of the Bill and its consequences are common ground. It will result in a huge concentration of power. There is a great deal of consensus in this matter, which I hope will be maintained, but it will require self-restraint and sensitivity on the part of the Government to ensure that it is maintained. However, I hope that the consequences will be beneficial.
	It is a glimpse of the obvious, but it is true to say that the authority will have the power to damage, if not destroy, the livelihood of the persons against whom it takes action. Even the threat of action, if accompanied by publicity, can do considerable damage, and it is unrealistic to think that publicity will not attend the activities of the authority. We have to scrutinise the powers and the structure of the authority with a very sharp eye. If I may be forgiven a little bad Latin, quis custodiet ipsos custodes: who is to regulate the regulators?
	At the end of the day the FSA will be regulated by the Government and Parliament and the courts. I hope that much use will be made of the Committee procedures in both Houses because the activities of a body like this authority cannot be disposed of in a two-hour debate held once in six months. There should be steady and consistent supervision by committees of this House. It would be improper to suggest what procedure the other place should adopt.
	I am sure that much time will be taken at the Committee stage in deciding the procedures and penalties, but it seems very likely--and one may draw on the lapidary words of the noble and learned Lord, Lord Hobhouse--that much will fall within the field of criminal law.
	In one sense, that will add to the burdens placed on people and the time taken up by the authority's activities, but in another sense I applaud it. There will be better safeguards for those involved in the procedures and penalties. It may be inconvenient for Government and the authority, but, none the less, we must consider the impact on those who are likely to be under the harrow. We must consider their position and how far they may be safeguarded. No doubt we shall have considerable debates on how to reconcile this legislation with the Convention on Human Rights. I shall not anticipate that because I am sure that in Committee we shall spend many hours on the detail.
	I also suggest that the costs of litigation should not fall entirely on the financial services industries. I believe that the Government must face up to underwriting the costs. I know that there is provision for official legal assistance, but it would be macabre if the industry, in order to be protected from its weaker brethren, should be made to underwrite all such litigation. The Government must be prepared to face up to the fact that they will have to meet part of the costs.
	I turn to the structure of the authority. I concede that there will be much debate about the status of the chairman and deputy chairman at its apex. That may turn out to be largely academic. There is no precise definition of an executive or non-executive role in company law. There is a certain amount of revenue law which turns on the length of time anyone has spent in a job. My sympathy and admiration goes out to Mr Howard Davies because, however he is described, he has more than a full-time job, whatever role he chooses to delegate to his deputy chairman. That is likely to be the case if the present position continues.
	I hope that if no common ground can be found the most practical approach will be to adopt the admirable suggestion of my noble friend Lord Alexander that we should return to the issue in five or so years' time, after the initial period when it would be a disaster if the talents and experience of Mr Davies were denied to the new organisation. However, it may be that when the time comes for him to lay down his office we shall have a clearer view of what is involved and how far one needs clearly to distinguish the roles of chairman and deputy chairman. Beyond that, I am delighted that there will be so many points at which non-executive advice can be fed into the machine and its operations. That is most important.
	I turn to the other end, because no one has touched on the staff of the organisation. Many of them will be absorbed from the bodies which are being merged together, but I hope that many more will need to be recruited. I hope that people will be generous and far-sighted in the terms that they offer. This is not something to be left to bright young men in the year or two after leaving university before they try to make a career in another financial field. Although I had a brief period in the Treasury, I hope that we can override its inevitable instincts and make certain that the authority offers reasonable terms and secures the best possible talent for an important role.
	One point was touched on by my noble friend Lord Bagri, who returns to the Chamber at an important moment. It may be that I have not read all the evidence given before the Select Committee, but I have not heard or read much about the scope of the jurisdiction of the authority. I appreciate all the difficulties, and the noble Lord, Lord Haskel, touched on some of them. It will be difficult to identify with utter precision where a vulnerable transaction or piece of advice took place.
	I suppose that it is possible to define where the operators are based, but that will touch on only part of the problem. In this modern world, and in a particularly sophisticated field such as financial services, the operation will be capable of being spread over a wide territory. How that is to be met, and the relationship between the authority and the regulatory authorities in other countries, are difficult to see. One sees already that there is some tie-up as regards members of regulatory authorities of other European countries and related countries such as Iceland and Norway. However, a little more thought must be given to the issue.
	Perhaps in winding up the Minister will feel able to touch briefly on the point. However, I hope that he will recognise that in Committee we must debate it in considerably greater detail or we shall not understand, first, why many vulnerable transactions are not caught and, secondly, whether people from a wider area will be brought into the net of the regulatory authority here.
	No doubt during the Committee stage we shall be able to deal with those and many other technicalities. I do not blame the Government for having brought in a further 500 amendments since the conclusion of the Bill in the other place. I have no doubt that many more will be produced in the course of our debates. However, I hope that the Government will understand--and I know the sensitivity of the noble Lord, Lord McIntosh, in handling the House and such questions--that against a further wave of amendments we shall not be pressed too hard to get through the Committee stage at a canter. If the House is to play a proper role as a revising Chamber--and that was emphasised during recent debates on other subjects--I am sure that the Government will realise that it must have proper time to scrutinise and debate the various changes that are needed to make the Bill commendable to the country as a whole.
	We all share the common objective that the authority should be effective and fair and that it should be recognised as such. On that basis, with some slight foreboding about the weeks to come, I shall have no difficulty in supporting the Bill tonight.

Lord Donaldson of Lymington: My Lords, some of your Lordships may be a little surprised to hear that I actually have an interest to declare. The fault lies largely with the noble Lord, Lord Alexander of Weedon, who, in the wake of the local authorities' swap scandal, was chairman of a committee which recommended that the wholesale financial markets should have as part of their infrastructure a body which would look at the law as applied to that part of the industry in order to see whether there were uncertainties and other obstacles to the smooth and profitable running of the industry. The body which was formed was the Financial Law Panel. I was its first chairman and, I am pleased to say, still am. Having said that, I claim no particular expertise other than in the capacity of being a spectator over the years.
	It seems to me that the Bill is largely a paving measure, although having listened to many other contributions, I understand that not all noble Lords will agree with me. If there is any devil in the detail, although I do not think that is the case, it will be that produced by the Financial Services Authority rather than the Bill itself. As I understand it, what is proposed here is that the industry shall be, in large measure, self regulating. For my part, I believe that to be essential. Not only will the industry be self regulating, but the regulatory body itself will be highly flexible. Again, I regard that as essential because of continuing rapid development in the markets. It is also to be user friendly. That is clearly demonstrated in the regulatory objectives set out in Clauses 3 to 6; and in the provisions on consultation set out in Clauses 7 to 9. It is also confirmed by the requirement that, before statements of principle are issued or codes of conduct promulgated by the authority, drafts shall be produced so that all parties concerned will have an opportunity to offer their own input. It is a requirement that those contributions shall be considered by the authority.
	I was also glad to see provisions which practically require the authority--even if only in a permissive form--to give guidance as may be necessary. That was pointed out by the noble Lord, Lord Alexander. The vast majority of people involved in this industry are honest and wish to comply with regulatory requirements. However, inevitably there will be times when borderline situations arise in which guidance will be necessary. That is certainly true of my profession--the legal profession--where not only is guidance provided, but that guidance is important to all its members.
	I daresay the FSA will hesitate to go quite as far as the SEC in the United States with its provision for "no action" letters. No doubt that would be highly expensive. However, I hope that the FSA will not hesitate to give guidance to individuals with problems. The big conglomerates probably have available to them better advisory facilities than does the small man--in so far as one can have a small man in the wholesale markets.
	After that general welcome to the Bill, perhaps I may now turn to two specific points. First, I give a warm welcome to the provisions relating to disciplinary matters. There has been a continuing problem with overlapping jurisdictions between the central authority and individual market regulators. Under Clause 119, the FSA will have powers to, so to speak, call in investigations or disciplinary proceedings which are either contemplated or in progress by individual market regulators so as to ensure that only one all-embracing prosecution takes place.
	Great arguments have broken out over whether, when two people bring individual prosecutions, there is the risk of double jeopardy. In my view, I believe that that is rare, in the technical sense. However, in substance there most certainly is such a risk and enormous problems have been encountered when trying to decide whether the first prosecuting authority took account of the misdemeanours alleged by the second prosecuting authority when it fixed a penalty. That is thoroughly undesirable and it is not made any less undesirable when a tribunal is faced with claims from a prosecuting authority that very large penalties shall be inflicted, but the tribunal knows perfectly well that if it does inflict such penalties, the primary beneficiary will be the prosecuting authority itself. Happily, paragraph 16 of Schedule 1 provides that the FSA shall have no regard to its own working costs when fixing a penalty.
	Secondly, I wish to mention the matter of immunity. For some 26 years, I have had the pleasure of working with total immunity. Added to that, I have enjoyed total security of tenure. I am bound to say that I do not believe those two features have caused me to go mad--even if that might have been said by the Court of Appeal on a few occasions. I believe that to be more a reflection of its desire to have the last word than a reflection of its wisdom. Only once, in the years between 1971 and 1974, when I was president of the National Industrial Relations Court, did I experience those pressures. At the time, political pressures and temperatures were running very high indeed. At the time I was aware that my job was made immeasurably easier by the fact that no one could sue me, get rid of me or pressurise me in any form. I thought of an analogy; it is that of a man standing on the edge of a cliff in a high wind. He will have to adjust to it. He must bend either one way or the other. Almost certainly he will get it wrong and fall over the cliff. So, it is vitally important that those who need to reach judicial or quasi-judicial decisions are totally insulated from such gales.
	I regret the suggestion made by some noble Lords that there should be a complaints organisation employing someone with total immunity. Complaint is not the right concept here. Although I agree that a form of appeals process must be in place--a tribunal is to be established that could easily supply such a function--it is not right to talk in terms of complaint. There may be differences of opinion which need to be looked at by another tribunal, but that does not mean to say that there has been cause for complaint. Perhaps that is only a judicial view, but, if I am wrong, I must observe that there were a large number of complaints against me in the course of my judicial career, but I prefer to regard them as appeals.

Lord Northbrook: My Lords, first, I must declare an interest as a director of an investment management company and as someone who, for almost 20 years, has been working in the financial services industry with both large and small investment companies. During that time, I have seen the regulatory regime change from a very informal but successful system to a much more complicated and bureaucratic system following the Financial Services Act 1986, and yet more so as proposed under this Bill.
	I recognise that business development means that the City will always be a changing place to regulate. Over the past 15 years or so, the arrival of European, American and Japanese banks in the investment industry has made an enormous difference, because in many cases they have taken over UK institutions and brought with them new methods of doing business. In addition, the new products that have emerged--for instance, new types of shares, innovations in the collective investment industry, hedge funds and enhancements to existing instruments such as futures and options--require extra forms of regulation to protect the investor. But this regulation must not be so bureaucratic that it drives business elsewhere or prevents new start-ups.
	At Third Reading of the Bill in another place, the Shadow Chief Secretary to the Treasury said:
	"The City is under almost ceaseless attack. The competition in world markets is without pity and continuing. A regulatory system must respect that. Whilst it must be effective, it must avoid imposing excessive costs. Whenever possible it should promote competition at home and competitiveness in world markets".
	He went on to say that if the regulatory system fails to do the above, investment operations may move to more flexible locations, such as Dublin or Frankfurt. Consequentially, jobs in the UK could be lost. He also stated that over-regulation works to the disadvantage of smaller financial businesses, who have fewer resources to cope with the additional paperwork.
	My personal experience of working in a small investment management company backs up his comments. I shall detail a few examples of how our company is regulated. I do so not by way of complaint, as I am a firm believer in the principles behind the rules, but to show how much time has to be spent on administration to the detriment of actual investment management.
	First, our investment management regulatory authority's (IMRO's) rule book in three thick volumes must be known thoroughly. For each investment deal, three separate times have to be recorded in our dealing book: time of decision, time of order and time of execution of deal. When the broker's contract note is received, the time on that must be reconciled to the dealing book. That is one of the items that will be checked carefully when the book is examined during our regular inspections by IMRO.
	We are required to record a multiplicity of further information: every unsatisfied order, any dealing error, all gifts, every lunch (although not yet the contents of the lunch or the wines!) or meeting that we attend involving companies or people relevant to our business so that it may be seen that we are keeping our professional experience up to date. We have to record change of auditors and directors. In addition, we complete self-assessment forms annually, giving details of personal objectives, level of achievement and future targets. We must also complete quarterly financial returns to IMRO, demonstrating that our capital adequacy is sufficient. All the above are all very necessary but demanding in time and must be done by the three of us who manage the investments. In contrast, the larger firms will have separate compliance departments at no little expense.
	I return to the Bill itself. I wish to focus on several areas that give me cause for concern: first, the fact that the FSA is statutorily immune from prosecution. While I accept that it is reasonable that individual employees or directors of the FSA should be personally immune, it appears somewhat unreasonable that a circumstance could arise where the FSA removes the livelihood of a firm or an individual, yet that person or organisation has no redress. In cases such as negligence, I believe that the statutory immunity of the FSA should be removed. It has been suggested that the FSA's proposed immunity may prove incompatible with the European Convention on Human Rights, which is due to take effect in British law during 2000, but that should not be taken for granted.
	Another separate area of my concern is that the practitioner panel is appointed by industry bodies selected by the FSA rather than by the Treasury. The FSA attached to its aide-memoire on the Commons stages of the Bill its letter of 16th February, which I am sure other noble Lords have received. It states in its defence:
	"It is in the FSA's interest that the practitioner panel should carry credibility within the industry and not be seen as an FSA poodle".
	I am not sure of that, as it would be all too easy to appoint a compliant panel.
	Another area that I believe to be a major business issue is our party's belief that a new fifth statutory objective should be added to the Bill; that is, the maintenance of a vigorous and effective market in financial services. However, in its aide-memoire mentioned previously, the FSA states that:
	"A separate competition/competitiveness objective would conflict with our existing objectives in an unhelpful way".
	I believe that that is a rather disappointing reply. It implies that regulation will be carried out without any regard for the effect on UK competitiveness unless and until the OFT complains, whereas if the issue could be considered in the first place by the FSA, potential damage could be avoided.
	Another concern which I have in the Bill is, as mentioned by other speakers, the phrasing of Clause 19, which needs to be amended to restrict the prohibition of financial services on the Internet. Perhaps I may ask the noble Lord, Lord McIntosh, whether the existence of a website can constitute unlawful financial promotion by a company. Are all financial websites to be approved by the FSA? In its aide-memoire, mentioned above, the FSA does not mention the Internet in refuting criticisms of Clause 19. Also, as stated by my noble friend Lord Hunt of Wirral and other speakers in connection with the Internet, I note the increase in investment message boards where investors exchange information on individual shares, often under incomplete or anonymous names. Again, perhaps I may ask the noble Lord, Lord McIntosh, what is the FSA's attitude to this grey area.
	I end by referring to some other more detailed areas of concern which may not be covered by other speakers. The first is a matter of definition. The Institute of Chartered Accountants of England and Wales is concerned about what is meant in the Bill by the word "person". While companies and individual financial traders are covered by the definition, it is not clear whether that encompasses partnerships and trusts. It should be remembered that in the BCCI scandal, BCCI was controlled ultimately by a trust. Therefore, as I understand it, in its current form the Bill would not authorise the FSA to act in the case of a similar situation arising. Perhaps I may ask the noble Lord, Lord McIntosh, for his views on that matter.
	Secondly, as mentioned by my noble friend Lord Rees, the FSA staff in appropriate positions should have appropriate knowledge of the financial services industry. That may sound obvious but at present there is a problem in this area, which I have encountered from practical experience. In order to save money, the FSA employ many young people, often accountants, who have little experience of the financial services industry. If more experienced people from the industry were employed, the regular inspections might well take less time because from their experience those people can more easily understand the important matters to be checked. Therefore, even though they might be paid more, they would be cost-effective.
	Thirdly, I come to the point of pro-rata-ing. It may sound esoteric but it involves a very important point. As present, an investment manager must ensure that, if he buys shares for a number of clients, no one client is treated unfavourably as against another. In practice, that is fine with a large share such as ICI, where supply normally will match demand. However, with a smaller company, invariably the exercise will prove much more difficult as, due to lack of supply, the result will often be that each client will receive a ridiculously small amount of shares.
	In consequence, many investment managers will not make the effort to buy those smaller company shares. The result of that can be seen easily in the ratings of most smaller company shares, apart from Internet shares, against their larger rivals. That is bad for their growth, can lead to takeovers at poor prices and generally discourages them from coming to the market. That whole area needs to be examined, as we must encourage our quoted smaller companies to grow into tomorrow's ICIs, with resultant benefit to employment and the economy.
	Finally, the Bill continues the recent legislative trend of leaving a lot of the detail to secondary legislation, much of which has not been seen even in draft form. On this side of the House, we shall scrutinise that secondary legislation carefully.
	In summary, I support the principles behind the Bill but am worried about many of the details, only some of which I have been able to cover in this speech, on the grounds that, overall, the Bill concentrates too much power in the hands of the FSA and potentially undermines the competitiveness of the UK financial services industry.

Lord Eatwell: My Lords, the enormous task, indeed the revolutionary task, which the Government have set themselves--namely, the creation of a single statutory regulator of all financial services--is extremely difficult to get right. That is why the Government are to be commended on the extensive procedures which they have put in place for detailed consideration of the Bill, most notably the examination of a draft Bill by the Joint Committee chaired by the noble Lord, Lord Burns.
	The Government are also to be commended on listening to some of the issues raised by that committee and in other representations and on taking action in the form of extensive amendment of the original and successive drafts. However, I shall argue later that some siren voices should not have been listened to quite so attentively and that some amendments have unfortunate consequences. But that does not diminish my admiration for the Government's overall approach as set out in the Bill.
	That approach is necessary to keep pace with the revolutionary changes sweeping through financial services. As was argued earlier, the boundaries between banks and other financial services have completely broken down and the industry has become seamless. But the UK regulatory structure has remained fragmented. There were far too many cracks through which damaging and even dangerous activities could fall. That is why it is so important to create a single regulator responsible for the whole financial services industry. That is why the FSA will become and, indeed, is becoming the model for future integrated regulation of integrated markets throughout the world.
	I should declare a slightly sad interest as an independent director of the Securities and Futures Authority, which will disappear once this Bill becomes law. While I recognise the need to replace existing institutions and practices, we should take care not to throw out valuable babies with the bath water. We should build on some of the successful aspects of financial regulation conducted by the SROs under the terms of the Financial Services Act 1986 and ensure that the new legislation does not lower existing regulatory standards.
	I turn now from those general remarks to specific points. I begin with Clauses 2 and 3 which define the statutory objectives of the FSA. I wish to focus on the objective of market confidence. It has been acknowledged by the Government that one of the most important roles of the FSA, acting alone and in conjunction with the Bank of England and the Treasury under the memorandum of understanding of October 1997, is the management of systemic risk. As noble Lords know, systemic risk is the risk to the operation of the financial system as a whole that spreads from the risks taken by individual firms and from defective market structures and behaviours.
	Ensuring that the financial system does not collapse is the most fundamental task of any regulator--the most important thing that it does. It is no good protecting the rights of consumers, for example, if, at the end of the day, their savings have been consumed in a general market collapse.
	The regulator manages systemic risk through its management of the risks taken by firms. That is why the then Economic Secretary to the Treasury, my honourable friend Patricia Hewitt, acknowledged in Standing Committee in another place on 13th July last year at cols. 168 and 169 that the Bank of England could never ensure the stability of the financial system on its own, and it is the FSA that has a close understanding of the way in which firms are exposed to each other and how excessive exposure in one might cause a chain reaction in other elements of the system.
	Yet for reasons which are extremely difficult to understand, management of systemic risk is not included among the objectives of the FSA listed in Clause 2, even though it is the most important thing it does.
	Ms Hewitt argued in another place that the term "market confidence", which appears in Clause 2, includes, but is wider than, managing systemic risk. That seems to be clear. But then in evidence to the committee chaired by the noble Lord, Lord Burns, Mr Howard Davies, Chairman and Chief Executive of the FSA, stated that the objective of maintaining confidence in the financial system referred to maintaining people's confidence that market prices are fair. He made no mention of systemic risk.
	It was to clear up that confusion that the Joint Committee recommended that explicit reference to managing systemic risk be added to the definition of "market confidence" in Clause 3. The Government rejected that recommendation of the Joint Committee. They did not, as my noble friend Lord McIntosh argued in his earlier speech, accept all the recommendations with respect to Clauses 2 and 3. The Government rejected that recommendation but they did not say why. Perhaps the Minister will enlighten us later this evening.
	While I am on the issue of objectives, I wish to join with those noble Lords, including the noble Lords, Lord Alexander of Weedon and Lord Sharman, who warned against including the promotion of competition as an objective of the FSA. I believe that Clause 2(3)(g), which refers to "facilitating competition" already goes too far.
	It is not the role of the FSA to become another competition commission. Indeed, making competition an objective would introduce a damaging ambiguity into the FSA's objectives. I suggest that Clause 2(3)(g) should be deleted.
	I turn now to Clause 8 which refers to the "practitioner panel" which is,
	"to represent the interests of practitioners".
	I believe that the approach of this Bill and of the FSA to the role of practitioners is likely to throw out with the bath water a lot of very experienced babies. As was recognised by the Joint Committee and acknowledged by the Government, the success of this legislation will depend to an unusual degree on the talents of the people who implement it. That was a point made by the noble Lord, Lord Rees.
	In that respect, the FSA has a real problem. While it has managed to attract many skilled and talented staff, it must compete for them against the salaries and career prospects offered to those same talented people in the financial sector. As noble Lords will be aware, it will have great difficulty in competing with some of the terms on offer.
	There are two potential solutions to that dilemma. One is to ensure that working for the FSA is an outstanding educational experience so that any young people who wish to make a career in financial services will want to have on their CVs some time spent at the FSA, even if at a relatively lower salary than they might earn elsewhere. That is the case in relation to employment with the Securities and Exchange Commission in the United States.
	While we may have hopes for the future that the educational role of working at the FSA may become a dominant factor in City careers, it is not the case today and it would be folly to pretend that it is.
	The other solution to attracting appropriately talented staff is to enlist practitioners in the regulatory process, not merely as interests which must be represented, as in the case of the practitioner panel, but as active participants in the decision making of the authority. Practitioners embody a wealth of talent and experience and they come for free, or at least they come very cheap.
	In differentiating itself from the old SRO regime, the FSA at first repudiated that source of talent, other than as high-level board members with very broad-brush overviews or in a general consultative capacity. I am glad to say that subsequently the FSA realised the mistake it was making and declared that practitioners will serve as full members of the new enforcement committee. That was a major step forward but it does not go far enough. There must be full practitioner involvement also in authorisation by an understanding of private sector careers and business organisation. That is fundamental to an effective authorisation process. There should be practitioners' involvement in policy making too, where the practitioners' input is necessary if the FSA is to keep up with the very latest developments in financial services. I hope that the Minister will be able to give the House some insight into the Government's thinking on practitioner involvement later this evening.
	I now turn to the general issue of market abuse as set out in Clause 109 of the Bill. The regulation of market abuse is fundamental to the maintenance of confidence in financial markets. Therefore, it is fundamental to the reputation and indeed the future prosperity of the City of London and of financial services throughout the United Kingdom. The manipulation of markets and the use of insider information is a threat to our financial services industry and that is why the Government should be heartily congratulated for their evident desire to widen the net in which to capture those who abuse our markets.
	But they have not been congratulated, but generally castigated. In sections of the financial press and among many of the better-known City law firms, the new FSA has been portrayed as a huge ogre that, in the name of stamping out market abuse, will trample under foot the civil liberties of pure, white lambs who graze in the financial markets. A regrettable echo of that view appeared in the speech of the noble Lord, Lord Saatchi, and of other speakers on the Opposition Benches.
	Sadly, the Government seem to have taken some of this dangerous nonsense far too seriously. Let us be frank. In several important respects this Bill weakens the protection that presently exists against market abuse by authorised persons. It therefore weakens the protection afforded to Britain's financial markets and exposes them to greater risk.
	There are a number of points in Part VIII of the Bill which weaken protection against market abuse. This evening I shall deal with only one of them. I shall return to others in Committee if the Government have not taken remedial action. One fundamental weakening of the regulatory regime introduced at Committee stage in another place, is to be found in the definition of market abuse in Clause 109(1)(c). That was referred to earlier by the noble Lord, Lord Burns. There, market abuse is defined as behaviour,
	"which is likely to be regarded by a regular user of that market who is aware of the behaviour as a failure on the part of the person or persons concerned to observe the standard of behaviour reasonably expected of a person in his or their position in relation to the market".
	What all that comes down to is that the standard for judging market abuse is to be the standard of a reasonable, regular user of the market.
	Let us consider the significance of that standard in the light of the following analogy. The centre forward of a Premier League soccer team breaks towards the opponents' goal. In desperation the defender grabs his shirt. When the referee blows his whistle the defender protests that his behaviour was only that,
	"likely to be regarded by a regular [professional soccer player] ... as the standard of behaviour reasonably expected of [his fellow professionals]".
	It would be. We all know that soccer players pull each others shirts all the time. If Clause 109 applied to soccer all confidence in the game would be destroyed; shirt-pulling would become endemic and soccer would perhaps develop into rugby--something which some of us would regard as highly desirable.
	I now turn to a couple of practical examples of how Clause 109 weakens regulatory protection in the United Kingdom today. These examples, although hypothetical, are not dissimilar to actual cases which have been dealt with by the Securities and Futures Authority. Let us suppose that in the commodity market there is a sharp rise in prices indicating a shortage of supply even though the regulators know that warehouse stocks are high. The regulators search for a party who is manipulating the market by cornering supply. But when they turn to market participants, regular market users, they are told that that is par for the course. Under the current SFA regime the party who had cornered the market would be prosecuted. Under the weakened regime of this Bill, the SFA would face the problem that regular market users might argue that hoarding is a routine and common market practice.
	Perhaps I may take a second example. Let us suppose that the corporate finance department of an integrated investment bank receives unpublished and price sensitive information about a takeover bid. The market makers in the same bank accumulate a large number of shares in the takeover target and profit from the subsequent takeover announcement. Under the current SFA regime the bank could be held to have infringed the principle of high standards of market behaviour and it would certainly be prosecuted. Under the new code proposed in this Bill the investment bank could argue that it was only doing what a reasonable, regular market user would expect it to do.
	Of course, that defence might fail, but the point is that it is made available by Clause 109. Under the current regime no such defence is available. The Bill threatens to weaken the protection that the regulator can provide against that kind of market abuse.
	I hope that these examples have convinced the Minister that the Bill, as currently drafted, weakens--perhaps even seriously weakens--the power of the regulator to attack market abuse and must be amended if the current high level of confidence in Britain's financial markets is to be sustained. The regulator must be given the power to require high ethical standards and not just regular standards. Standards must certainly not be placed at the mercy of the, "regular user of [the] market". If they are, how can standards ever be raised? I hope that the Minister will give an unequivocal assurance when he sums up this evening that the Government will look again at Clause 109.
	There are a number of other parts of the Bill that I wish to take up in Committee. Suffice to say in conclusion that I broadly and enthusiastically welcome this Bill. It is clear from what I have said that it has some flaws, but there is nothing that cannot be put right because the underlying foundations are very sound. The principle of a single regulator is certainly right for today and for the future. The world of the financial markets is one of continuous innovation and rapid change. There are no boundaries. To sustain the pre-eminent position of the financial services industry in this country we need a regulator who can keep pace and, most important of all, who can encompass the whole, fluid terrain. That is what the FSA can--and with the successful passage of this Bill--will do.

Lord Stewartby: My Lords, I begin by declaring certain interests in this Bill. In the 1980s I was the Treasury Minister responsible for two regulatory Bills, the Building Societies Bill and the Banking Bill which became Acts of Parliament in 1986 and 1987. Subsequent to leaving another place, I became a member of the then Securities and Investments Board alongside my noble friend Lord Alexander which lasted long enough to have its name changed to the Financial Services Authority. Currently, I am a director and, for my sins, chairman of the audit committee of an international bank, a building society and a Lloyds insurance company. So I come to this legislation from several different viewpoints.
	At this stage in the debate--and it has been extremely interesting--I do not wish to rehearse what has been said, probably much better, by other noble Lords. But I wish to offer certain observations from a personal point of view on what I regard as the really central questions relating to the legislation.
	I begin by apologising for not having been in the Chamber at the outset of the debate. I apologise to the Front Benches and to the noble Lord, Lord Burns. My reason for absence is that I was attending a meeting in my capacity as chairman of an audit committee, which is not a responsibility these days that can be taken lightly.
	The first point to which I want to respond is the question of the concept of a single regulator. I am interested to hear that that question is not in dispute. Two or three years ago, when the Financial Services Authority was brought into being and the self-regulatory organisations were incorporated into it--even though the legislative framework was not in being at the time--there was considerable debate as to whether a single regulator would be too large and inflexible to deal with the task at issue. Events since that time have made clear that there is no sensible alternative.
	Markets have been changing rapidly. The speed of communication has increased dramatically within markets and worldwide. There has been an increasing overlap of activities by different types of financial businesses. New instruments have been invented which do not readily fit the classification of the old divisions of financial markets. And investment, insurance and lending often merge into each other. That makes it foolish to continue with a division of regulation according to precise functions.
	There has not been much of a move internationally. However, when I travel abroad to financial centres far afield, I am frequently asked how we are getting on with constructing the single regulator and whether or not it will work. My answer is that we are getting on quite well; that this Bill is welcome and will work; and that sooner or later most other serious financial centres in the world will have to follow suit. It is greatly to the credit of this country and its governments that for many years we have been in the forefront of regulatory developments and the raising of standards. This Bill is a further contribution in that direction.
	As to whether the framework of the Bill is right, I do not want to comment on more than one or two points. Is it right to sweep all these activities together? The danger is of harmonising the approach so much that it confuses the issue. The same sorts of procedure are not necessarily appropriate for all types of activity, for various sizes of business, or for a domestic as opposed to an international business. I was, however, encouraged to see at page 19 of A New Regulator for the New Millennium what is referred to as the nature and intensity of the FSA's supervisory relationship with firms. It is spelt out clearly that that nature and intensity will depend upon a number of factors, including the riskiness of the business, the quality of management, the size of the firm and the areas of business in which it is involved. If that approach is followed, it will effectively meet most of the anxieties expressed about a monolithic process.
	I am particularly pleased that the objectives of the FSA and of this legislation include improving public awareness. During many years in another place representing some 80,000 of our fellow citizens I was constantly astonished by their lack of a proper understanding of what I felt were the basics of financial affairs, even in respect of their own lives and needs. I hope that education can be widely spread. It must start at a young age. For example, in the 1970s there does not seem to have been any general public consciousness of the relationship between risk and the price of credit. Many people put money on deposit with institutions paying high rates of interest which must have implied that their businesses were not conducted entirely according to the most risk-averse principles.
	I remember going to the United States in the 1980s and suggesting to the administration that it ought to do something to restrict its deposit guarantee scheme where it offered 100 per cent indemnity on up to 100,000 dollars with any institution. That was a recipe for disaster because all the depositors put 100,000 dollars into each of the so-called "thrift" institutions which were paying the highest rates of interest. They outbid each other and in due course collapsed. The administration was not receptive to my suggestion that it should try to do something about it. I was told it would not get through Congress. I felt that that was a good reason for bringing in a proposal. It was certain that there was going to be a crisis and by adopting what I had suggested the administration might have gained greater authority and credibility for having seen it in advance.
	This legislation will give the FSA tremendous powers, possibly making it the most powerful institution in the land. Many noble Lords have pointed to the power which the Bill will give the authority over the livelihood of practitioners and the need for a proper balance of protection. It is an area of the Bill we shall need to examine critically in Committee.
	When I was a member of the SIB our experience in respect of cases brought to the board for consideration was that they were well founded. Nothing that I experienced at that time made me feel that there was an arbitrary or unfair approach to the disciplining of those who may have transgressed. I have great confidence, like other noble Lords, in Howard Davies and his team.
	I picked up certain stories by hearsay in relation to some institutions which felt that they had suffered injustice at the hands of certain SROs. They felt that they had not been fairly dealt with and that a fine, reprimand or criticism was not justified. However, they felt that the problem of making a fuss about it was not worthwhile in terms of publicity and antagonising the regulator.
	I do not know how much credence should be attached to those stories. I do not find them entirely incredible. It is important that the FSO should not be afraid to act, but there should be appropriate protections and safeguards for those who fall within its power. One of the aspects which the FSA has been emphasising over the past two or three years particularly is the importance of accountability within regulated firms. I agree. Indeed, for a while I was chairman of a working group on behalf of the FSA considering how accountability attaching to individuals within institutions could be formalised. But if individuals and businesses are to be accountable to the FSA, the FSA must be accountable within the democratic system. I do not know whether that is best done by a Joint Committee of the two Houses of Parliament or a committee of your Lordships' House; but something of that kind needs to be established.
	I want to comment on the question of whether or not one person should combine the roles of chairman and chief executive. I have listened carefully to the debate but my view is still that it is largely a problem of terminology. I do not know any chairman, even though he may be described as "non-executive", of any major organisation in the private sector who does not have some involvement in policy decisions or other executive matters. It is almost impossible for an active chairman of a large company to separate himself from those issues, and indeed it would be wrong of him to do so. In my view, therefore, it is wrong to call a person who runs a business the chief executive, with the implication that there is no executive authority beyond him. It is a pity that we have lost the old terminology of "managing director" for somebody who runs a business. It seems to me that the chairman of the FSA and the chairmen of any other substantial and powerful public bodies simply have to become involved with policymaking and decision making. If they are to answer to the institution, they will need to have been involved in all those matters. We can return to that at Committee stage.
	The final and most important question is whether the new system will work. The answer is that it depends on how it is put into effect. If it is done bureaucratically, it could become very burdensome and oppressive. It could inhibit innovation and could indeed ultimately perhaps drive business away from our financial markets. If it is implemented with balance and a sense of proportion and with proper regard to the diversity of businesses within its scope, it can make a valuable contribution to the efficiency and reputation of the City of London and enhance the effectiveness of financial markets in the United Kingdom.

Lord Blackwell: My Lords, like my noble friend Lord Stewartby and others who have spoken, I, too, welcome the concept of a single regulator and the benefits that it should bring through simpler and more consistent rules. However, as others have said, the devil of this legislation is in the detail, and much of the detail is not in the Bill itself but in the secondary legislation and rules which will follow from this framework, much of which we cannot see or debate this evening. I shall therefore outline a few points to which I wish to pay particular attention as the legislation passes. In doing so, I, too, declare an interest as an executive of a major clearing bank.
	The first issue that I wish to raise is the impact of this Bill on the burden of regulation and cost. My noble friend Lord Northbrook mentioned some of the practical consequences. I am glad that it has been recognised that different segments of the market clearly require different treatment. That is a good starting point. However, we must accept that in many areas of the market, particularly in consumer products, it is simply not cost effective to sell under the current legislative and regulatory framework. It is not cost effective to provide the kind of advice that is required, given the cost of the fact-finding and advice process required by the compliance. Nor can I accept that the interests of consumers are served if the efforts to protect them mean that in reality they are excluded from markets. For example, as we look at bringing mortgages within the scope of the regulation, we need to take care that that process does not apply to the cost of mortgage selling. We also need to bear in mind some of the lower cost products that are currently hit by compliance costs, such as sales of unit trusts and low cost investment schemes.
	My point is that what follows from this legislation should not stand in the way of schemes and products which provide the information and point out the risks, but it should be left to the consumer to make a judgment and take responsibility. In particular, as other noble Lords have said, we must recognise the consequences of Internet technology in providing new decision tools, providing new sources of advice and providing more information to consumers. As we go forward with Internet technology, the meaning of the word "advice" may well change significantly. With regard to the way in which advice is delivered and the ability of people to get information and advice without the kind of advice service that has typically meant face-to-face discussions, we need to make sure that Clause 5 is not drafted or interpreted in a way which means that compliance becomes a barrier to the development of such services.
	My second area of concern relates to the risk of regulatory price intervention. I ask the Minister for a reassurance that the intention is that price intervention by the regulator will not go beyond the price stabilisation measures referred to in Clause 136. I raise this point because, in my opinion, there is sometimes a tendency for both the Government and some regulators to believe that a proactive role in price intervention is part of their market role. For example, the experience in stakeholder pensions has not been an encouraging precedent in financial markets. Financial service is not a monopoly. On the whole, pricing is best left to competition. There is a danger that intervention, however well intentioned, will artificially block market developments. This may or may not be part of what is allowed for and intended under this legislation. However, I would welcome a reassurance that the scope of what is intended by secondary legislation and rule-making will circumscribe old style price intervention and regulation.
	My third area of concern is the level of prescription in which the FSA may engage in relation to what products and services may be offered. I am wary of the general tendency that I perceive in this legislation to prescribe what is allowable rather than to restrict what is unacceptable. There is a danger of the Government, and the FSA acting on behalf of the Government, appearing to endorse particular schemes and products through the use of kitemarks or endorsements which appear to recommend products and services in a way which could be taken as advice by people who see any endorsement by a government body or a regulator as implying appropriateness of products, when that is not what is intended and when clearly the FSA cannot have the detailed information or knowledge to endorse the appropriateness of products for particular investors.
	That is particularly true if we bring long-term care into this arrangement. I share with the noble Lord, Lord Lipsey, and others the enthusiasm for the development of the long-term care market. However, that is a sector of the community in relation to which we need to be particularly careful to ensure that the endorsement of schemes by regulators does not seem to carry approval. The regulator must be seen to set the standards that those schemes must meet, rather than be seen to imply appropriateness. There is a danger that product rules could step into that area. Not only do consumer dangers derive from that, but, if we over-prescribe what should be provided in the market, that prescription will build rigidities into the market and stop product innovation.
	My fourth area of concern is one that has been raised a number of times, that is the matter of governance. Given the huge power and scope that is being devolved to the FSA under this Bill, accountability is crucial in order to explain and justify its actions--accountability not simply for the appropriateness of its expenditure and efficiency but for the appropriateness of its actions taken in the public interest.
	Like other noble Lords, I have no doubt that the intentions of this legislation, as well as those of the FSA, Howard Davies and the other executives who are in place at present, are good. But, as other speakers have said, the legislation has to survive beyond individuals. We need assurances on those areas that I have mentioned, and on others, to ensure that we know what will happen once the legislation is passed.

Lord Newby: My Lords, there is clearly a wide degree of support from all sides of the House for the principal purposes of the Bill; namely, to introduce an integrated approach to supervision of the financial sector and to have a strong single regulator during a period of revolutionary change. There is also agreement that this is a very ambitious Bill. That was brought home to me when, within the space of a few minutes, we had the noble Lord, Lord Bagri, talking about the problems of the copper exchange and then, immediately afterwards, we heard from the noble Lord, Lord Lipsey, talking about the problems of the frail elderly. Indeed, it would be difficult to think of a Second Reading on another Bill in which two speeches could be made about such disparate subjects, without them seeming to be strange or jarring.
	Part of the wide degree of consensus that has emerged during the course of this debate can be laid at the door of the extensive consultation on the part of the Government and the FSA that has taken place, as well as through the operations of the Joint Committee chaired by the noble Lord, Lord Burns. Clearly, in all those respects, the procedures that have been followed have made it much easier to deal with many of the difficult issues that the Bill seeks to address. It was also clear from the Minister's opening speech that there is still some concern as regards certain old issues that have not been dealt with satisfactorily, and as regards some newer issues that have emerged as the Bill has gone through its various stages.
	Although we accept that the Government, for perfectly good reasons, will be introducing a large raft of amendments to the Bill, I have two comments to make. First, I hope that we shall be given the maximum amount of time within the constraints of the timing of the Bill to enable us to attempt to make some sense of them. Secondly, just as the Government, for perfectly good reasons, feel that they need to introduce many amendments at this stage, I hope that they will, in return, be sympathetic to the fact that we and others in this House may wish to introduce amendments even though the Bill was subject to very detailed consideration in another place. As the noble Lord, Lord Saatchi, said, this is not essentially a party-political Bill. We are all attempting to achieve the most effective regulation in a very difficult and complicated area. Therefore, I hope that the Government will consider carefully the amendments that we bring forward and that they will treat them in the same spirit as they hope we will treat their amendments.
	There are three areas to which I wish to return at the end of the debate. They are issues which I believe concern us most and upon which we will want to concentrate in Committee. The first relates to governance; the second relates to the question of the promotion of competition, as well as a number of consumer issues; and the third is the scope of the powers of the authority and related issues.
	I shall begin with governance. Again, I believe that this encompasses three issues. First, there is the question of the role of the chairman and chief executive. This has been much trawled over in another place. Suffice it to say, we believe that too much power remains concentrated in one individual. Therefore, we need checks and balances. We also believe that the role of chairman and chief executive should be split.
	Secondly, there is the question of the role of the non-executive members of the authority, to which far less attention has been directed. When thinking about how the non-executive directors will fulfil their duties, I believe that the Government and the FSA had in mind the role of the Court of the Bank of England. Having spent some time as a member of the Select Committee on the Monetary Policy Committee looking at the way in which the Court of the Bank of England exercises its authority, I am not absolutely convinced that that is a very happy parallel. I am not actually sure that that is really the way that the Government and the FSA see the non-executive directors behaving. The Court is pretty far removed from much of the work of the Bank. I believe that the non-executive members of the FSA will be required to be closer to the workings of the authority. Therefore, to say, "Oh well, we've got a system in the Bank of England that works pretty well; that's the model we take", is not wholly acceptable to us. We believe that the non-executive members of the authority should have a wider role of monitoring and advising on the overall strategy of the authority, which they do not have at present.
	The third matter under the heading of "governance" that I wish to mention is the whole question of parliamentary scrutiny. In terms of the credibility of this body, it is important that it should be accountable--not just to the House of Commons but also to this House, possibly through a new Joint Select Committee or an economic Select Committee in this place. Either way, it is important that members of the authority should come before Parliament regularly to explain their work. That is a crucial underpinning of its public credibility.
	I move on to my second main area; namely, the extent to which the authority, among its other requirements, should promote competition. There is some confusion here between various aspects of this question. There are certain parts of the competitiveness of the British financial sector that I am sure we all agree the FSA should be promoting. I have in mind in particular the sector's international competitive position. Clearly, when looking through its detailed rules and regulations, it would be crazy if the FSA did not take into account how they would affect the international competitiveness of the sector.
	There is also the question of where the emphasis should lie. Although the FSA must look at anti-competitive activities, we believe that there is a real danger of a muddle occurring if it starts too aggressively to promote competition. My noble friend Lord Taverne outlined some of the detailed argument in this respect and we shall return to the matter in Committee. I believe that we are in danger of the FSA getting into a real mix-up with the OFT and the Competition Commission if it adopts an aggressive stance in terms of promoting competition.
	It seems to me that the problem facing consumers is not so much a lack of competition as a lack of awareness and knowledge, as well as an inability to judge what is often an absolute cacophony of broadly similar products. We need to devote a little time here to looking at strengthening consumer interests. On the narrow point about the awareness of the consumer of the products that he or she is buying, the point made by the noble Lord, Lord Stewartby, in terms of how the FSA could use its powers to promote public awareness starting with school pupils, is well worth considering.
	As regards consumer interests, which need to be given slightly more thought, there are two issues that we will want to consider as the Bill progresses. The first relates to the extent to which caveat emptor applies. We have considerable sympathy with the argument that the basic principles of the Sale of Goods Act--namely, that goods should be fit for the purpose for which they are sold--should apply to financial services. It seems to us that there is a prima facie case in favour of tangible and financial goods being subject to that same requirement.
	We also think that the point that has been made by a number of speakers about the possible requirement to facilitate access for disadvantaged consumers is something that is worth pursuing. I believe that the noble Lord, Lord Borrie, made that point in referring to the Utilities Bill. We shall wish to pursue that point.
	My third general area relates to the scope of the powers of the authority. Here two issues have raised their heads consistently during the course of the debate. The first relates to mortgages. I think it is common consent that the current situation in the Bill is not acceptable. It does not cover all aspects of mortgage advice. It does not deal adequately with the question of advice on mortgages which goes alongside advice on other financial matters, as was mentioned by the noble Lord, Lord Haskel. As the noble Lord, Lord Burns, said, we simply do not know what is regulated and what is not regulated in this area. We and the Bill need to be clearer in that respect.
	The second issue relates to long-term care, a subject that was eloquently advanced by the noble Lord, Lord Lipsey. Again there appears not to be a satisfactory answer as to why this should not come within the purview of the Bill. My only slight caveat is that we do not want to see in this area what I think we have seen on the mortgage front; namely, that a late amendment to the Bill results in partial and inadequate provision. If amendments dealing with long-term care are to be introduced, we need to be satisfied that they do deal with long-term care.
	In the past 10 minutes I have concentrated on those areas where there is not consensus, and where there probably will not be consensus during the Committee stage. I believe that we all agree on the importance of this Bill both to the financial services industry and to consumers. We are all keen to ensure that the Bill which emerges from this House enables the FSA to conduct its affairs in the most effective way possible. It is in this spirit that we support the Second Reading and look forward to the Committee stage.

Lord Kingsland: My Lords, the opening remarks of the noble Lord, Lord Newby, have allowed me to dispense with mine, because I agree with them totally. In my observations I shall try to get the Minister to address some of the issues that he addressed in his opening speech in a little more detail and in the context of what your Lordships have said so far.
	In his opening remarks the Minister referred to a further 600 amendments which the Government are to table to this Bill. He divided them into three categories. The first category was an entirely understandable one because it concerned Stock Exchange listing conditions--a matter which was raised in the course of the proceedings in another place. There we would of course expect some new initiatives.
	The second category was stated to be to rationalise the decisions of the FSA. I must say that I heard that statement with a certain amount of alarm--because the Government have already tabled 750 amendments in the course of the Bill's progress through another place. I felt that if they had not managed to rationalise the decision-making procedures of the FSA after tabling 750 amendments, what hope would a further 600 have of achieving that objective?
	The third category of amendments to which the noble Lord referred was in the sphere of competition. I want to pause there to ask the noble Lord one or two questions. The matter has already been worked over with great skill by a number of your Lordships, and it features in Clause 2 of the Bill. Your Lordships who have taken the trouble to glance at Clause 2(3) will be aware that paragraphs (e), (f) and (g) define three quite distinct notions of competition.
	The first concerns the international competitiveness of the British financial markets as compared with other financial markets around the world. The second falls into what I would call the classic Director General of Fair Trading category; that is, the prohibition of anti-competitive practices that have crept into a particular market. The third concerns the notion of actually initiating competition in domestic markets which is not yet there, or which is not sufficiently there.
	I do not think that any of your Lordships would quarrel with category (e)--the first category. This afternoon all noble Lords have agreed that it is crucial in applying regulatory powers to beware of killing the goose that laid the golden egg. I believe that (e) is uncontroversial.
	So far as (f) is concerned, that is developed in another part of the Bill--Chapter III, Clauses 150 to 155--by what I might describe as a rather cumbersome procedure. This requires the Director General of Fair Trading, if he identifies a particular anti-competitive practice, to refer it to the Competition Commission, which then, after further study, refers it to the Treasury--which may or may not at the end of the day instruct the FSA to do something about it. I trust that one of the areas the Minister will look at again and, I hope, amend is that section of the Bill; because if anti-competitive practices emerge in financial markets they will emerge quickly and do damage quickly. Therefore it is in my submission essential that the Bill has a mechanism which is equally swift in responding.
	I turn to the final definition of competition, facilitating competition, and in doing so invite the Minister to say something about how he sees this principle being applied by the FSA. In my submission, the position of the utilities is quite different--because in most cases where utilities are concerned they derive from nationalised industries. It has been a perfectly understandable requirement of the regulator to do something about that state of affairs because otherwise there would simply be a private monopoly. However, in this case many of the markets are already quite open with a large number of players and with relatively free entry and exit--not for all but for many.
	Of course, at the end of the day this is a matter for the FSA, but how ought Mr Davies to apply this particular measure? After all, ultimately Mr Davies is responsible to the Treasury, as we are constantly reminded. Therefore it is a matter to which the Treasury certainly ought to apply its mind. As a Treasury Minister, no doubt the Minister is at this moment applying his mind.
	These matters are of great importance because Clause 2 is really the hinge of the Bill. Clause 2 requires the general functions exercised by the FSA to be exercised in the context of four regulatory objectives and seven considerations. In Committee in another place, the Minister, Mrs Hewitt, said quite clearly that, if these considerations were not all taken into account in formulating and applying the general functions, decisions by the FSA would be judicially reviewable. Therefore each one of the four objectives and each one of the seven considerations has to be taken into account. In those circumstances the way the FSA applies the three competitive considerations is, I submit to the Minister, crucial.
	There are a number of technical issues that your Lordships will consider throughout the passage of this Bill which, although not politically controversial, must not be neglected. I draw the Minister's attention briefly to just four or five of them.
	The first is the question of EEA rights, which are dealt with in Schedules 3 and 4 to the Bill. Schedule 3 deals with passporting and Schedule 4 with treaty rights. As the Minister is well aware, there has been a dispute about the way in which Schedule 3 relates to Schedule 4. That may or may not have been ironed out by now, but, if it has not, I give the Minister notice that the Opposition will be tabling amendments to ensure that Schedules 3 and 4 elide into one another, as it were.
	Secondly, the noble Lord, Lord Eatwell, raised the question of systemic risk. I share his amazement that that matter has not been dealt with in one of the four objectives. Instead, if one takes what is said in the committee of another place as what will continue to be the Government's policy, it appears that the matter of systemic risk will be the subject of discussions between the Governor of the Bank of England, the Chancellor of the Exchequer and the chief executive of the FSA in their monthly meetings. It is such a critical issue to the market that I should hope to see something more in the Bill about it; if not in the regulatory objectives, then in some other part.
	The third matter which I state to be politically non-controversial is the question of the relationship of market abuse to the criminal law, touched on both by my noble and learned friend Lord Fraser of Carmyllie and the noble and learned Lord, Lord Donaldson. It is extremely important for those regulated to know in what circumstances the FSA will draw in the DTI, the Serious Fraud Office and the Director of Public Prosecutions to alert them to the fact that a particular form of behaviour is, in its opinion, criminal.
	The final of this set of likely amendments from the Opposition concerns branches of foreign companies situated in the United Kingdom which deal exclusively with customers living outside the United Kingdom. Our view, which we trust the Minister will share, is that such branches should not fall within the regulations.
	As so many of your Lordships have said, the FSA is an institution of enormous power. The issue of accountability is crucial. The Bill is a skeleton Bill. We know little of how it will operate until we have seen the rules and guidance issued by the FSA. Will we see some of those rules and guidance in draft form in the course of Committee stage and on Report? I hope so, because it will make it so much easier for us to do our work.
	The FSA is in itself a statutory legislature. It has enormous powers to make rules which can, at the end of the day, lead to people being fined and losing their jobs and consequently their reputations. If the rules were made by your Lordships' House and another place, they would of course be fully discussed; but your Lordships will not have an opportunity to consider them. On what system of accountability, therefore, can those operating in the market rely?
	The Government have made two suggestions. First, that the FSA is enshrined in a corporate structure. But as many of your Lordships have said, the system and rules of corporate behaviours laid down in the Cadbury code are inappropriate and do not, in any case, apply in the Bill. That is particularly true of the role of non-executive directors, dealt with in Schedule 1 to the Bill. Your Lordships will have noted that the powers given to non-executive directors are largely housekeeping powers. If the rule of good corporate governance is to have any real application, does the Minister agree that it is crucial that non-executive directors have the power to assess the work of executive directors of the FSA in every aspect of their work, including the way in which they apply Clause 2 of the Bill? As the noble Lord, Lord Newby, said, it is simply not satisfactory that the non-executive directors of the FSA have the same status as non-executive directors of the Bank of England.
	If the corporate governance principles do not satisfactorily guarantee accountability, what role can your Lordships' House and another place play in doing so? Perhaps I may suggest three initiatives which the Minister could take as the Bill passes through your Lordships' House to ensure clear accountability.
	First, the FSA should be required, in making its rules, to consult the practitioner panel and the consumer panel. There is a general obligation, but no specific obligation, to consult those two independent organisations. Furthermore, in circumstances where there is a disagreement between the FSA and the practitioner panel and the consumer panel, that disagreement should be made public. That would not be an innovation. In the course of the passage of the Access to Justice Bill, the noble and learned Lord the Lord Chancellor gave precisely that undertaking with respect to consultation by the new boards responsible for legal services. Given the Government's commitment to the principle of transparency, such an initiative in the Bill would be wholly in conformity, as I understand it, with the principles that the Government themselves espouse.
	Secondly, there is a power in the Bill to have a review, but there is nothing which requires it to take place at any particular time or in any particular set of circumstances. Does the Minister agree that regular reviews are desirable? Is he prepared to set out circumstances in the Bill which would trigger the institution of such reviews?
	Thirdly, when the FSA delivers its annual report, will the Minister agree to contemplate a particular system of control within your Lordships' House and another place to review the previous year's performance of the FSA; and, in particular, with respect to its compliance with its general principles and also with respect to the cost effectiveness of the work that it is carrying out?
	There are two other matters to which I wish to draw the Minister's attention. The first concerns the question of statutory immunity. There have been differing views in your Lordships' House about the desirability of statutory immunity for the FSA. I am one of those who cannot see why the FSA should have statutory immunity. After all, a soldier in Northern Ireland, when he has to pull the trigger of his rifle, does not have statutory immunity if he makes the wrong decision. If he fails to pull the trigger in circumstances in which he should have done, he is court-martialled. If he pulls the trigger in circumstances in which he should not have done, he lays himself open to a prosecution for murder. The same is true of a policeman doing his duty. Why should the FSA have statutory immunity if soldiers and policemen in far more testing circumstances than those faced by the representatives of the FSA do not receive immunity?
	I am rather puzzled by the part of the Bill dealing with the question of damages in relation to statutory immunity. There are two exceptions. One refers to "bad faith" and the other to Section 6(1) of the Human Rights Act 1998. I should be most interested to know how the Minister defines bad faith. Does he define it in the way in which most Crown Office judges define it nowadays, as running into other concepts such as unreasonableness or taking matters into account which should not have been taken into account? Does he think that it includes recklessness?
	So far as concerns Section 6(1) of the Human Rights Act, in the light of the recent well publicised decision in Osman in the European Court of Human Rights, does he now not think that under the Human Rights Act it will be difficult for any public institution in this country to plead complete immunity from damages on the ground that such a plea would be a denial of justice under Article 6 of the convention?
	These questions are crucial to everyone who operates in the market. The Government owe it to those operators to tell them exactly where they stand. To the extent that the Government believe that damages will still not be available, will they agree to a much tougher system of compensation than they were prepared to agree to in another place? There, as I understand it, the Government were unwilling to allow the independent investigator to be selected by the Lord Chancellor, were unwilling to let complaints go directly to the independent investigator and, above all, were unwilling to consider compensation in circumstances where the FSA had behaved negligently. Will the Minister think again about the position that the Government took in another place?
	Finally, whereas I agreed with the noble Lord, Lord Eatwell, on the question of systemic risk, I disagreed with him on his concerns about the new definition of market abuse. Quite to the contrary, I think that the new definition of market abuse is far too FSA-friendly and ought, by contrast, to contain the requirement of intent before the FSA can move against an operator for market abuse.
	I would add to that two other concerns about the market abuse rules. The first concerns the scope of the definition of market abuse. It not only refers to investments which take place on one of the six qualifying exchanges but also refers to the subject matter of those investments. For example, if the FSA was targeting someone dealing in gold futures, it would also be entitled to target the person who was engaged in the underlying transaction in gold itself.
	Equally, if a qualifying investment is itself the subject matter of another instrument, such as derivatives, those derivatives too would fall within the definition of market abuse. Those instruments would not be required to be traded on the six exchanges but could be traded anywhere in the world. So what is the limit of the concept of market abuse, both geographically and in terms of the kind of instruments about which we are talking? When the Government produce their guidance, will they consider encouraging the FSA to introduce some limits?
	Lastly, as the noble Lord, Lord Alexander of Weedon, rightly said, it is crucial that as much help is given by the FSA as possible to market operators in order to ensure that they clearly understand on what side of the line they are when they are engaged in trading either on the six recognised exchanges or in any linked transactions. Again, I remind the noble Lord of Article 7 of the European Convention on Human Rights, which requires certainty in the application of the criminal law.
	Many compliments have been paid to the noble Lord, Lord Burns, for all the work that he did on the Joint Committee. I should like to add to those. He took a huge burden off our shoulders by convincing the Government that much of what they had written into their original rules about market abuse contravened the European Convention on Human Rights. He has done most of our task for us. There is a little more to do. By the broad smile on the Minister's face, I am encouraged to think that he will be prepared to take that step.

Lord McIntosh of Haringey: My Lords, in opening the debate for the Opposition, the noble Lord, Lord Saatchi, promised us constructive opposition. When I used to do that from the Opposition Front Bench, that usually meant that it was going to be a wholesale attack on the principles and conduct of the Bill and no doubt on the principles and conduct of the Ministers promoting the Bill. Fortunately, either the noble Lord is more generous in his language than I am, or he has not been proved right, because, generally speaking, it can be said that the principles behind the Bill have received a welcome from almost all noble Lords who have taken part in the debate.
	It has been recognised that the Government's approach to financial services demonstrates our strong commitment to bringing up to date the disparate and fragmented regulatory regime which existed in the past by replacing it with a single regulator for financial markets with a set of coherent powers. I hope it will be recognised that even though I acknowledged that the Bill is extremely long and complicated, it introduces effective, efficient, fair and transparent policies, it establishes an accountable regulator who has clear objectives which are set out on the face of the Bill, something which has never been done before. The intention of the Bill is to support market confidence, to provide consumer protection and education, and to attack financial crime and abuse. The Bill fully recognises the importance of proportionate regulation and competition, competitiveness--the reason I do not use that word very often is that I can never say it--and innovation.
	Before I go any further I should acknowledge the fact that noble Lords on all sides of the House have praised the work done by the Burns Joint Committee. I hope I made it clear in my opening speech that the committee had a major impact on this important Bill and is continuing to do so.
	The noble Lord, Lord Kingsland, asked me about government amendments. I acknowledged that there would be a substantial number of government amendments. I said in my opening speech that they would be concerned with the transfer of responsibility for listing from the Stock Exchange to the FSA, rationalising the decision-making processes in the Bill--I do not think we talked about reforming the decision-making processes of the FSA--improving and achieving greater consistency in the use of definitions, clarifying the FSA's rule-making powers--rather more limited than the noble Lord, Lord Kingsland, thought--improving the procedures for competition and scrutiny of them, and one or two other points. My instructions to officials have been that as soon as a coherent group of amendments is available, it will be made available to the Opposition and indeed to all noble Lords who have taken part in the debate with an explanation of what they mean and how they fit into the Bill. If that means me writing 10 letters between now and the Committee stage, I am prepared to do that in order to ensure that as much notice as possible is available.
	In my opening speech I emphasised the importance of financial services to this country. Indeed, that has been made clear throughout the debate. It is clearly of importance to almost everyone in this country as savers, employees, and users of capital as well as active participants in financial markets. Here I have to disagree with the noble Lord, Northbrook, who quoted the shadow Chief Secretary to the Treasury as suggesting that there might be a move, because of regulation, to markets such as Dublin with lighter regulation. We take the opposite view. We take the view that well regulated markets are attractive markets. The FSA will of course be subject to a statutory requirement to have regard to the desirability of maintaining the competitive position of the United Kingdom, but we take the view that with a sound accountable and effective regulatory regime we will actually attract financial business to this country.
	A number of noble Lords talked about globalisation and the role of the Internet. Of course we recognise that financial markets are no longer glued to a particular city or country. We recognise that globalisation means that we have to attract those markets to this country. We recognise that the availability of electronic communications increases that likelihood. What the Bill does is make our regulatory system media neutral to take full account of the opportunities and risks presented by all forms of communication, including the Internet and the new global information technology generally. Internet communications are treated on all fours with other forms of communication. There is no reason to believe that this provision will undermine competition or the United Kingdom's international competitiveness. On the contrary, the regulator will be required expressly to take these matters into account in meeting its regulatory objectives. We have no intention of treating websites or bulletin boards differently from any other form of communication, any more than we treat advertisements in newspapers differently. The question as to whether they are subject to control depends on their purpose and contents and the context in which they are issued. The Treasury has issued draft guidance on these matters.
	I have emphasised again the importance of the move to a single regulator. Clearly, that raises substantial governance issues, which I fully recognise. Your Lordships will forgive me if I do not go into the chairman/chief executive argument. It is clear that amendments will be tabled on this point and that we shall debate them at considerable length in Committee. We take the view that, although we understand the thinking behind it and the analogy with corporate governance and the Greenbury and Hampel reports, we do need a strong line of accountability to Treasury Ministers from the chief executive. That is the view of the FSA board and it is our position at the present time. I hasten to say that the Bill does not preclude a future split, which could be achieved without statutory authority. However, our support for Howard Davies and the way in which he runs this business as chairman and chief executive is unbounded.
	Staying on the issue of governance, a number of noble Lords, including the noble Lord, Lord Newby, talked about the role of non-executives. Their role is spelt out in Schedule 1. I assure the House that they will play a full role in the decisions of the FSA and I assure the noble Lord, Lord Kingsland, that they will take part in assessing the work of the executive directors. I entirely agree with the noble Lord, Lord Rees, that the quality of FSA staff is absolutely crucial. Although there has been some turnover because of the move from a number of different organisations, that is well under control.
	I do not think that I agree with the noble Lord, Lord Blackwell, that there is reason to believe that the regulation will cost more. We are, after all, bringing together a large number of regulatory bodies. I do not see that rationalising the structure will prove expensive. In any case, value for money will be one of the criteria by which the FSA will be judged. Even if that were not the case, the noble Lord suggested that regulation might add to the cost of mortgage selling. How infinitesimal any extra cost would be compared to the social and economic cost of mis-selling, which has been too much a feature of financial markets in the past.
	A number of noble Lords referred to the scope of the regulatory authority and suggested changes to it. Perhaps I may illustrate a general principle by starting with long-term care insurance, which was advocated as an additional responsibility--most passionately by my noble friend Lord Lipsey but also by a number of other noble Lords. We are ready to look at the case for regulating long-term care insurance. The Treasury has established a committee, as Alan Milburn promised, consisting of both government and industry representatives, which is taking a fundamental look at the financial products in the market, seeking to find the products that would offer reliable, efficient and effective means of saving to pay long-term care costs. I do not doubt the potential importance of that market, even though it is perhaps only some 30,000 at present.
	I emphasise--and this applies to all suggestions of an increase in scope--that regulation is not the only protection for consumers. As with ISAs and stakeholder pensions, conditions of access terms (CAT) are a good protection for all who are inexperienced in financial markets. They may be more appropriate in some circumstances than regulation, which is concentrated inevitably on potential for abuse rather than for simple error.
	Similarly with mortgages, I understand the points that have been made about the limitations on the addition to the scope of the responsibilities of the FSA. However, we take the view that mortgage loans are intrinsically easier to understand than, for example, pensions. It is possible to disengage from them, usually at low cost or no cost--although in the past there have been bad exceptions. We take the view that, for most of the aspects of mortgage lending referred to, the FSA's disclosure regime is a powerful weapon.
	My noble friend Lord Haskel asked about the orphan assets of insurance companies. Here again, we believe that the matter is best dealt with by the regulator, rather than on the face of the Bill. However, I am happy to discuss the matter with my noble friend if he wishes to do so.
	I turn now to the issue of the statutory objectives and principles, and say again how important it is that we have sought to set these on the face of the Bill. That has made it possible to have serious and intelligent discussion about these issues. I was interested to find that the noble Lord, Lord Alexander, agreed with the noble Lord, Lord Burns, that there should be no more objectives. That applies particularly to the pleading that there has been for further objectives on competition.
	It is important that we should not think that the Government are not taking competition seriously simply because there is not a separate objective. The competition regulators in this country are the Office of Fair Trading and the Competition Commission. Their responsibilities extend across the economy as a whole, including financial services. It is their responsibility to investigate and deal with a suspected cartel of insurance companies in the same way as a suspected cartel of supermarkets.
	I say to the noble Lords, Lord Newby and Lord Kingsland, that the FSA is not a competition regulator but is concerned with prudential supervision of the financial services industry and the protection of consumers. If it had a competition objective, that would duplicate, and potentially interfere with, the job that is being done by the OFT and the Competition Commission. That does not mean that it has no interest in competition. We must always be aware of the danger that, in regulating, the authority might unnecessarily restrict competition. That is why we have made provision for that in Clause 2(3).

Lord Kingsland: My Lords, I do not think that I did say in my speech that competition ought to be an objective. My remarks were limited solely to the question of the three categories of competition being matters that the FSA should take into account.

Lord McIntosh of Haringey: My Lords, I am glad to acknowledge that.
	I turn to the speech of my noble friend Lord Eatwell. He made a powerful point about the management of systemic risk and recorded the fact that the Burns committee thought that the object of market confidence should refer to maintaining confidence in the soundness of the financial system. We are concerned with maintaining effective prudential supervision of individual institutions. If we singled out one aspect it could throw doubt on the role of the FSA in this area. The noble Lord, Lord Kingsland, recognised that there were what he termed "discussions" between the FSA, the Bank of England and the Treasury. It is more formal than that: there is a memorandum of understanding between them. We recognise that the various facets of the work of the FSA will require co-operation with a number of other bodies, the composition of which may change over time, but we believe that nothing would be gained, and flexibility would be lost, if we had statutory provision in the Bill. We believe that the Joint Committee's concerns in this area have been met without the need to amend the Bill.
	My noble friend Lord Borrie asked why there was a difference in policy between the Utilities Bill and this Bill. That is again a competition issue. The Utilities Bill is essentially concerned with ensuring that those with dominant positions do not exploit them to the disadvantage of consumers. Therefore, it is natural to talk about protecting consumers by promoting competition. But this Bill is about regulating financial services in a way that is compatible with a number of important considerations. As I believe the noble Lord, Lord Kingsland, recognised, there is no inconsistency in government policies; it is just that the context of the two Bills is different. We have no proposals to make significant adjustments to the structure established by Part X, but it is important that the improvements to be made are consistent with the Cruickshank report on competition and banking.
	The noble Lord, Lord Taverne, and my noble friend Lord Ahmed referred to financial exclusion, which is a matter of very serious concern. However, this is not something with which we can deal by a separate objective in the Bill. The problem with imposing an objective on the FSA to reduce financial exclusion is that it would cut across all the other objectives and detach it from its core role of regulation. We agree with the Burns committee that additional duties would make life unnecessarily difficult for a regulator with responsibility for prudential supervision and would change lines of accountability.
	That leads me to the more general issue of accountability. That matter was emphasised most helpfully by the noble Lord, Lord Sharman. The FSA is accountable to Ministers and to those affected by its actions. Accountability has been improved as a result of consultation, but the regulator must be free to regulate. We have no intention to add further to the mechanisms set out in the Bill. Perhaps I may describe for the noble Lord, Lord Blackwell, what accountability consists of. There are transparent objectives set out on the face of the Bill. Next, there are consumer and practitioner panels. There is also the power of the Treasury to order value-for-money reviews. I say to the noble Lord, Lord Kingsland, that we do not believe it is a good idea that those should be triggered on a regular basis. We think that they should be as required. There is also provision for a financial services and markets tribunal and an ombudsman system. Finally, there is the long stop of judicial review. Of course, the panels will be consulted, but whether that is in public is a matter for the panels. That could well be the case.
	All of this means that there will be very substantial parliamentary scrutiny of the work of the FSA. Members of the FSA can and, I am sure, will be summoned before Parliament to account for themselves, in addition to the parliamentary scrutiny of the annual report. In those circumstances, we believe that the charge of lack of accountability does not stick. On that basis, I believe that I can assert with a good deal of confidence the need for statutory immunity, which as far as I can see is opposed only by the Conservative Front Bench. I am prepared to elaborate on that in Committee.
	I turn briefly to the issue of delegated powers. We have almost no outstanding differences with the committee, as the noble Lord, Lord Alexander, was good enough to recognise. I was also glad to hear his welcome for the cost benefit analysis which will be part of the regime. The noble and learned Lord, Lord Donaldson, made some valuable points in this regard. It is true that, just as the consultation documents have been published, regulations and guidance should be published as soon as possible. The noble and learned Lord is also right to say that it is not our intention to emulate the SEC in having "no action" letters, for very much the reason that he identified.
	I was also glad to have the noble and learned Lord's recognition of the fair discipline arrangements in the Bill. We believe that they are compatible with the European Convention on Human Rights and our desire for high standards of fairness. The FSA will be required to operate on the basis of fair and transparent procedures, with those subject to discipline having recourse to a wholly independent tribunal. Some of this is set out in Part I. Like the noble and learned Lord, Lord Donaldson, I emphasise that the FSA will not be allowed to have regard to costs when fixing penalties. I add that it will not be allowed to have regard to penalties when fixing fees to authorised bodies.
	I turn finally to the large and vexed issue of market abuse and the ECHR. I believe that there is still a degree of misunderstanding about this matter on both sides of the argument. The defects in the existing regime are that the criminal law covers only a limited range of serious crimes but that the regulatory regime covers only a sub-set of the market; that is, regulated persons. The market abuse provisions do not cover just authorised persons but any other participant in very wide definitions of "financial systems" and "investment". We are aware that under the European Convention on Human Rights some cases of market abuse may be considered by European courts, and, after 1st March, UK courts, to be criminal and, therefore, that a different standard of proof may be required. It may well be that the boundaries between criminal and civil offences will be developed. I cannot now give the noble Lord an answer as to what they will be, even if I were legally qualified to do so. There are clear advantages in having market abuse procedures applicable to everybody which do not allow people to fall between the cracks and, as far as possible, are civil rather than criminal.
	The noble Lord, Lord Bagri, gave the very graphic example of the difficulty of dealing with the problems of Sumitomo which was not regulated by the London Metal Exchange or anyone else. The noble Lord, Lord Rees, referred to vulnerable activities which were left out--perhaps I use the wrong word--under the existing regime. The whole point is to ensure that no one falls between the cracks and that any offences which are damaging in the way set out on the face of the Bill are not omitted from the market abuse regime. In those circumstances, I am unable to reconcile the views of the noble Lords, Lord Northbrook and Lord Saatchi, with those of my noble friend Lord Eatwell who is anxious to ensure--I very much sympathise with him--that there are no gaps in the provision. Again, it will be not for me but for the courts to define what is meant by bad faith. I am encouraged by the general support of the noble Lord, Lord Burns, for that. I can only say on process that a code has been published after consultation. Your Lordships will be kept up to date as far as possible with future publications.
	I turn to a most important issue. The noble Lords, Lord Burns and Lord Eatwell, questioned whether we had gone too far with the regular user test in Clause 109(1)(c). It is critical to my relationship with my noble friend Lord Eatwell; I know that he is very suspicious of the provision. They are concerned with whether the regular user test means that we have lost an objective anchor in the regime and that as a result poor but common behaviour would be acceptable. In order to be market abuse, behaviour has to be of a particular type and has to be something that a reasonable person who is a regular user of the market would be likely to regard as a failure to observe reasonably expected standards--not "accepted" standards but "expected" standards. That is an objective test. The objective anchor is the regular user of the market. He is not any person who uses the market regularly but is defined to be a reasonable man.
	It is inherent in the concept of the reasonable man that he knows what is right. Just because a large number of the users of a market engage in, say, insider dealing does not mean that a reasonable man who regularly uses the market would conclude that it is the appropriate standard if the written or unwritten rules say that it is wrong. It is important that the objective anchor is the reasonable regular user of the market. If behaviour exists which affects his confidence in the market, then the efficiency and liquidity of the markets will be damaged.
	I wanted to respond to the noble and learned Lord, Lord Fraser of Carmyllie, about fraud in Scotland. In view of the time, I shall write to him on that subject.
	In conclusion, I hope that throughout consideration of the Bill it will be recognised that we have sought to strike the right balance. Despite his other criticisms, my noble friend Lord Lipsey thought that we had. The noble Lord, Lord Rees--he referred to financial markets going under the harrow--takes a different view. We agree with the noble Lord, Lord Taverne, that the regime must be flexible. It must not prevent innovation and competition and it must not involve excessive costs. We agree with the noble Lord, Lord Hunt, that small firms such as independent financial advisers should be properly treated, although we do not agree that they should be excluded from the provisions of the Bill. After all, we are looking at their customers, and it does not matter to those customers whether they go to a small or large firm.
	We stick also to the principle that no public money should be involved; that the financial markets should be responsible for all aspects of regulation.
	This has been a worthwhile and complicated debate. I am clear that even if we were not introducing amendments our Committee stage will be complicated and challenging. I look forward to it. I commend the Bill to the House.
	On Question, Bill read a second time, and committed to a Committee of the Whole House.

Northern Ireland Arms Decommissioning Act 1997 (Amnesty Period) Order 2000

Baroness Farrington of Ribbleton: rose to move, That the draft order laid before the House on 1st February be approved [9th Report from the Joint Committee].

Baroness Farrington of Ribbleton: My Lords, the order appoints 23rd May 2000 as the date before which the amnesty period identified in a non-statutory decommissioning scheme must end.
	The amnesty period is the time during which firearms, ammunition and explosives can be decommissioned in accordance with the scheme, thereby attracting both the amnesty and prohibitions on evidential use and forensic testing of decommissioned items provided by the Northern Ireland Arms Decommissioning Act 1997.
	Section 2 of the 1997 Act requires that a scheme must set out the amnesty period and that it must end before 27th February 1998 (the first anniversary of the Act's passing) unless the Secretary of State, by order, appoints a later day.
	My right honourable friend the Member for Redcar, when she was Secretary of State, made two such orders. Under that made last year, the amnesty period will expire at midnight on 23rd February this year. The purpose of this order is to extend that period until midnight on 22nd May this year. This date derives from the time-frame set out in the Good Friday agreement for the decommissioning of all paramilitary arms.
	We must press on to resolve the real difficulties that exist and restore full cross-community confidence in the institutions in Northern Ireland. The way forward is, of course, the implementation of every aspect of the Good Friday agreement, in full. The subject of the draft order before your Lordships tonight, namely decommissioning, is a central element in the process. It was an absence of progress on decommissioning which, as your Lordships know, contributed substantially towards the decline in trust and cross-community confidence among the community in Northern Ireland.
	Clearly, if that confidence is to be restored progress needs to be made on this aspect of the agreement, just as it has been on every other aspect. People need answers to the legitimate questions posed by the honourable Member for Newry and Armagh. Will decommissioning occur and, if so, when?
	Now, more than ever, it is essential that we move ahead to establish consensus on the way forward and rebuild confidence in the process. There can be no doubt in anyone's minds that decommissioning is central to this.
	In order for the commitments on decommissioning to be fulfilled in accordance with the terms of the agreement, the Government must play their part. In the agreement, the two Governments undertook to take all necessary stops to facilitate the decommissioning process, including bringing the relevant schemes into force by the end of June 1998, which we duly did. If we are to fulfil our commitment under the agreement it is essential that we extend, through this order, the period during which the scheme may declare an amnesty.
	As part of the Government's commitment to the full implementation of the agreement, it is essential that we continue to provide the means by which terrorist weapons can he taken out of circulation. This amnesty period order is central to those arrangements. I commend it to your Lordships. I beg to move.
	Moved, That the draft order laid before the House on 1st February be approved [9th Report from the Joint Committee].--(Baroness Farrington of Ribbleton.)

Lord Molyneaux of Killead: My Lords, it is perhaps appropriate that the following debate deals with Wales, an important part of the United Kingdom of Great Britain and Northern Ireland. If I may, I shall sit here, keep quiet and hope that I shall learn something from the words of wisdom of so many respected friends on this side of the House and on the other.
	Introducing this order on 14th February in another place, the Minister of State, Mr Ingram, understandably set its renewal against recent happenings. He rightly defended the decision of the Secretary of State to suspend the operation of devolved government in Northern Ireland. I, too, would support that decision realising, as I do, that it resulted from much wider considerations than possible impacts on, for example, the Ulster Unionist Party. On that flimsy basis, the Irish Government and other nationalists bitterly attacked the Secretary of State. They accused him of making what appeared to them a premature decision without attaching sufficient weight to yet another vague, last minute, IRA statement. The reality is that the Prime Minister and the Secretary of State had already been in possession of information on the short-term and long-term strategic intentions of the IRA based on decisions taken in the first week of January this year.
	It was against that background that during the passage of the suspension Bill I moved an amendment requiring that the statement on suspension be made within 24 hours of Royal Assent; in fact the announcement was made within 21 hours.
	One has to ask, how could the Prime Minister or the Secretary of State have failed to take decisive action, knowing beyond doubt the real intentions of fully armed terrorist organisations?
	It has to be placed on record that those senior Ministers did not fail in their duty to protect and safeguard the future, and their determination was reflected in the closing words in that speech by Mr Adam Ingram in another place only a week ago.
	The Government can now expect a co-ordinated assault on their position by various terrorist organisations, backed by other people who ought to know better. Noble Lords will know that the main target will continue to be the Royal Ulster Constabulary, with the intention of destabilising the entire community in Northern Ireland. The Government will need to consider the dangers of seriously damaging the morale and efficiency of the one guardian of the peace now that it is known that armed terrorism is, unfortunately, going to be an enduring feature of the landscape. Equally irresponsible would be that which is termed "normalisation of security", when normality is no longer on the agenda.
	In a very real sense, the order is rendered irrelevant by terrorist decisions, which they probably intended as new millennium gifts to the people of the United Kingdom.
	The Secretary of State has been prudent in damping down demands for a headlong rush into more summitry, for example in the form of yet another review. On Saturday last he recommended a period for reflection, rest and sleep for possible participants in any future discussions. The same restorative might be beneficial to the general public after three years' battering by spin doctors who skilfully manipulated the news industry, one has to say a very willing and eager news industry. Their victims now deserve to be treated as adults. They know that there are alternatives. For example, one such alternative exists in Wales, about which we will hear shortly.
	Next on the agenda, in a very practical sense, should be further early development of local democracy, where Northern Ireland councillors have made great strides in participation and co-operation across the divides, to an extent which compares very favourably with their counterpart councillors in Britain. After 25 years, surely even the Northern Ireland Office must be convinced of the wisdom of building from the ground up, particularly when there is tangible proof of the soundness of conventional methods of construction.

Lord Glentoran: My Lords, having heard the noble Lord, Lord Molyneaux, I should like to say that his contribution is very welcome. I strongly believe that this order is very necessary. It is really a tidying mechanism. Most of my views, which are not totally different from those of the noble Lord, are to be found in Hansard for Thursday, 17th February. Decommissioning is something that we all crave, but some of us are more optimistic about that than others.
	I take this opportunity to include a statement that I have been repeating since the days of my maiden speech. There are two ways of approaching power-sharing and devolution of power in Northern Ireland: the alternative to approaching it from the top downwards is to build from the bottom upwards.
	I do not believe that we have come to the end of the current peace process. This order tidies up the amnesty arrangements. It is the right order, which will enable Her Majesty's Government to do all that is possible to facilitate decommissioning.

Baroness Farrington of Ribbleton: My Lords, the noble Lord, Lord Molyneaux, has raised the very important issue of normalisation and security. I repeat the assurance that I gave noble Lords last Thursday that my right honourable friend the Secretary of State will take decisions on security measures following full consultation with the Chief Constable and the GOC. The paramount concern is safety. The Chief Constable has stated publicly that he does not believe that there is any immediate danger of the cease-fires breaking down. There has been no indication from paramilitary groups that they intend to end their cease-fires.
	The security forces in Northern Ireland and the Republic of Ireland will continue to use all the powers at their disposal to locate and recover illegally-held armaments and pay tribute to the RUC and the Garda Siochana for their continuing efforts to frustrate those wedded to the violence of the past.
	This is a temporary pause in the operation of the institutions and will afford a breathing space, an opportunity to take stock. It is crucial that we make the most of this opportunity to regenerate confidence in the institutions and the overall political settlement. There can be no doubt that decommissioning is central to building that confidence. Equally, there can be no doubt that the amnesty provisions contained in the order will play a fundamental part in making the decommissioning possible.
	I thank the noble Lord, Lord Glentoran for his support. Like the noble Lord, I am certain that we all pray for the peace that is so desperately needed by the people in Northern Ireland. I commend the Order to the House.

On Question, Motion agreed to.

Wales: Devolution

Lord Carlile of Berriew: rose to ask Her Majesty's Government whether their policy objectives in relation to devolution of power to Wales are being achieved.
	My Lords, I welcome this opportunity to debate in this House the progress of the National Assembly for Wales. I am very grateful for the significant number of noble Lords, many of whom have served Wales with great distinction, who have indicated a wish to speak in the debate. I should like to say to the noble Lord, Lord Molyneaux, that he is a very welcome guest at our Welsh debate this evening.
	I must confess that it had been my hope to engineer this debate so that it fell on St David's Day. It shows that I am as yet inexperienced in the arcana of the procedure of this House that I have fallen short of the fence by a number of days. I shall try again next year.
	From Cardiff, I received challenges today about the legitimacy of this House, and indeed this Parliament, debating the activity of the Assembly. In answer to that, I would say, first, that it is sometimes helpful for those who are on the inside looking out to hear the views of those who are informed and are on the outside looking in. Secondly, I would remind those who object to our having this debate at all that theirs are devolved powers from this Parliament and that there is a self-evident legitimacy to a debate of this kind.
	I hope that I shall be forgiven for reminding the House of my party's commitment over many years to the devolution process. In the 1992-97 Parliament, when I was in another place, I was Leader of the Liberal Democrats in Wales. With Ron Davies from the Labour side, I was instrumental in agreeing with Labour the devolution settlement that was adopted. I want to pay tribute to Ron Davies for his remarkable achievements in putting that agreement into effect in his very short period as Secretary of State for Wales.
	I also want to pay tribute to the party leaders in the Assembly--unbelievably, there have been seven so far--and to all the Members of the Assembly for their energy and dedication and for their unstinting efforts to make the Assembly the focus of everyday Welsh political life. Unfortunately, recent polling and the observations of many of us who live in Wales and have strong political interests, show that the Assembly has yet to win the respect of the Welsh electorate, let alone their hearts and minds. I want it to. No public institution paid for from public money can look to its future with self assurance unless it earns public support, though perhaps it is too much to expect any elected body to earn public esteem.
	The events of recent days involving the replacement of the First Secretary have, on reflection, in my view not enhanced the reputation of the Assembly within or outside Wales. The adoption by the new First Secretary of an unchanged Cabinet, with no new policies whatever, seems decidedly odd after such conspicuous events. I know from perusing past debates that the noble Baroness, Lady Farrington, who will reply tonight, has sound historic Welsh credentials and a real knowledge of the issues. Therefore, it is with hope and even expectation that I urge upon the House tonight that several changes are needed to sustain the impetus of devolution and to give firmness to its purpose.
	The first relates to the Assembly and its powers and role. It is old ground and I shall not dwell there. I simply say that the Assembly, with the changes I propose, would be well able to deal with primary legislation and, like the Scottish Parliament, should do so. If any public money was involved and it was thought right, that could be subject to scrutiny in this Parliament. But all grown up regional parliaments in the western world--at least, almost all--have some primary legislative powers and the Welsh Assembly should be no exception.
	The second change I advocate--and it is a very important one--is that the separation of powers should be recognised in Cardiff in every sense. There are many top-quality public servants working at and for the Assembly. Their personal independence cannot be seriously doubted. Notwithstanding that, as was recognised by John Osmond in his December 1999 report for the Institute of Welsh Affairs, those public servants are serving two masters; the Assembly Members and the Welsh Cabinet. That is unsatisfactory and involves a conflict of interest far beyond the acceptable.
	I suggest to your Lordships that, like the two Houses here in Westminster--and, indeed, like the Scottish Parliament--the Welsh Assembly should have a Clerk's department employed by, advising and answerable to the Assembly only. The staff should be no part of the executive arm of government. They should be there to give advice to all members founded on political neutrality. They should be free from undue executive pressure or any serious suggestion of it.
	Connected, and on the issue of neutrality, is my third proposal. This, unfortunately, involves some criticism of someone I admire and I am pleased to see in his place; the noble Lord, Lord Elis-Thomas, who is the Presiding Officer of the National Assembly for Wales. In recent weeks, his self-vaunted refusal to take or heed the advice available from those senior officials I have mentioned has been regrettable. His comment prior to the confidence debate to the effect that Mr Alun Michael should get on his knees and pray for his job was deliberate, intemperate, ill-judged and, frankly, inflammatory. The noble Lord is an admirable politician, but he should consider whether he feels he is suited to what is necessarily a position of neutrality. And above all, perhaps it is right that there should be further enshrined in the rules of the Assembly a role for the Presiding Officer which is akin to that of the Speaker of the House of Commons.
	The next issue to which I turn is the mode of debate in the Assembly. I suggest that the debating rules should be amended to give more Back Bench time in the most important debates. No Welsh politician worth electing ever fears or resents criticism and scrutiny in robust debates. The rules of the Assembly are stifling real debate. The no-confidence plenary motion was a stark example. It was the Assembly's most crucial debate, yet it took one hour or so only, with no Back Bench contributions. Indeed, if one looks at the lay-out, it is sometimes more reminiscent of the phoney parliaments of the old, planned, centralised economies than of the parliament which it seeks to be. The way in which Members are not identified with the areas they represent, in my view is not helpful to the public. Indeed, it is incongruously "unWelsh". It would befit the noble Lord, Lord Elis-Thomas, who has laughed throughout most of my speech, to hear these remarks as representing the views of many people in Wales.
	My fifth proposal is that there should be a conventional printed Hansard-type document issued on a daily basis. Not everyone has access to the Internet and it is inconvenient for many.
	My sixth point is that we must devise clearer and more routine links which are crucial between this Parliament in Westminster and the National Assembly for Wales. Too many people in Wales do not understand those links at the moment. They are too indistinct and that lack of understanding extends to some of us.
	I turn briefly to the way in which the discussion in the debate on no confidence in the First Secretary was bedevilled by Objective 1 discussions. The discussion was bedevilled by a great deal of misinformation about the nature of Objective 1. I know that others will speak to that in more detail.
	I say that there is a crying need for rural regeneration, the relief of poverty in rural areas, better education provision and many other changes of policy in Wales. But, frankly, where it comes from does not matter as long as the result of the public spending round is that there is enough to meet the policy need.
	I hope that this debate will contribute something to the evolution of the Assembly. Above all, I hope that it will be recognised that party advantage should be set aside to two ends. The first is to give Wales a consistent and stable government with a clear programme until the next Assembly election in 2003. The second is to awaken Welsh people to the potential and importance of the Assembly, which I support. I want to see that reflected in large turn-out figures at the 2003 election as opposed to the disappointing turn-out at the last.

Lord Cledwyn of Penrhos: My Lords, I welcome this short debate initiated by the noble Lord, Lord Carlile of Berriew. It gives us an opportunity to discuss how things are developing at the National Assembly for Wales. I hope that some constructive points will emerge in the course of the debate which will also be of help to the Assembly.
	Throughout my life I have argued the case for a Welsh elected assembly. The main object of Welsh devolution was to evolve a more democratic control over the actions of central government in Wales, to achieve more direct accountability of Welsh government to the people of Wales, to improve the material and social well-being of the people and to safeguard the heritage of Welsh nationhood.
	The setting up last year of the National Assembly for Wales was for me a national and historic achievement. It was a milestone of huge significance in the history of Wales. Of that, I have no doubt. Having fought for a national assembly for decades, the expectations of many people were very high when the Assembly first opened its doors.
	However, I am conscious that there has been much criticism of the way the Assembly has conducted its affairs. Those criticisms have been widely reported in the press. I shall not recite them this evening, but of course they have worried me, as they have all noble Lords. I have been particularly concerned that they could be exploited by the opponents of devolution in order to seek to damage the concept of devolution itself. Therefore, I wish to say as clearly as I can that my belief in the values of devolution and my confidence in the ability of the Welsh people to take charge of Welsh affairs has not been altered or weakened by anything that has gone on at the National Assembly. Rather, they have underlined that the National Assembly, and the national responsibility which it implies, was long overdue.
	I tend to believe that most of the problems which lie at the source of the criticism are teething problems, because less than 12 months ago, most of the Assembly members were without previous experience of government. Others may take a different view of the nature of those problems. However, I am pleased to understand that some of the critics who fiercely opposed the proposal for a Welsh Assembly, right up to the referendum, are now suggesting that additional legislative and tax varying powers be devolved to the Assembly. That strikes me as a reassuring move.
	It has always been my belief that the future of a country must ensure respect for its different traditions. There is no easy way of safeguarding this. I would therefore not rule out of consideration the possibility of bringing members of other parties into the Executive, provided that there is sufficient consensus among them about the issues which need to be addressed.
	As has already been said, the National Assembly has a new First Secretary. Last week, Rhodri Morgan took over from Alun Michael. I have known Alun Michael and his family for many years. Despite his major contribution to the setting up of the Assembly, a week or so ago he felt obliged to resign his office. That was his judgment. I welcome his successor, Rhodri Morgan, who has a large reserve of goodwill throughout Wales. He is an able and popular politician in Wales. It is my earnest hope that, under his leadership, the criticisms will be examined. If they are valid, they will be eliminated or alleviated.
	As I said earlier, expectations were high last May. Those expectations are now more realistic. But I believe that the Assembly, with its teething troubles sorted out and uniting behind a broad programme of government, will grow in stature and responsibility as it wins the confidence of the people of Wales.

Lord Crickhowell: My Lords, the noble Lord, Lord Carlile of Berriew, has done us a service in raising this Question this evening. The decision to devolve political power in Wales was taken by the narrowest of margins. If that vote was taken again today, against the background of our experience so far, I doubt whether the result would be repeated. The majority in Wales are cynical about the whole exercise and believe that they are getting poor value for their money. Or, as the noble Lord, Lord Carlile, put it, the Assembly has yet to win the respect of the Welsh people.
	Their cynicism stems from the fact that they feel that they have been treated with contempt by the Government and in particular those in the Labour Party feel that they have been manipulated and duped. There is an extraordinary lack of connection between the words used by the Government and their actions.
	A recent article in The Times in the name of the Prime Minister refers to the inheritance of,
	"over-centralised, remote and insensitive government [with] everything directed from London".
	It speaks of actions being taken to push power out from the centre so that the,
	"nations and regions can find innovative local solutions to local problems".
	You have to be remarkably insensitive to use language of that kind when you have just suffered a humiliating setback after attempting to impose from the centre your own man and your own policies, entirely regardless of local people.
	In another article in The Times, Simon Jenkins has argued that, because the Government have received a bloody nose, this represents a triumph for devolution. He wrote:
	"They have twisted and manipulated to distort local democracy and put 'one of us' in place".
	As a consequence,
	"devolution reacted with admirable speed. It clobbered Labour ...".
	The trouble with that argument is that it tells only half the story. I have never doubted the good sense of the electorate or its ability to clobber bad and arrogant government. However, the really important question remains to be answered: is the system capable of delivering good government?
	Over the past nine months, government in Wales has been paralysed. Partly that has happened because, even over the simplest matters, there has been endless debate and discussion in the Assembly itself. Partly it has happened because Mr Alun Michael combined, in a peculiarly disastrous manner, an inability to take decisions with an unwillingness to delegate. All over Wales, public bodies stand helpless, public appointments stand vacant and people await some sign that the administration has the capacity for action.
	The question now is whether Mr Rhodri Morgan will be an improvement. His political career so far--and, I would add, his popularity--has been built on his talents as a hostile critic. He has been negative, destructive, rude and has seldom advanced a positive idea. The million dollar question is whether he can harness his undoubted talents and energy for a positive purpose. I hope that he can and that he will. The opposition parties should give him a chance, but if he fails they are entitled, acting together, to be as critical of him as he has so often been of others in the past.
	I say, "acting together" advisedly. We have been told repeatedly by Ministers that devolution would bring together the political system in a new arrangement that was to be inclusive. That makes all the more remarkable the Prime Minister's extraordinary tirade at Question Time in another place about the fact that the Conservative Party had been prepared to act with Plaid Cymru in the Assembly vote of confidence. Does he not remember that moment on 19th September 1998 when his Secretary of State stood, hands aloft, with the leaders of Plaid Cymru at the School of Music and Drama in Cardiff? Does he not remember those happy days of 1974 when Labour was struggling to retain power and the noble Lord, Lord Elis-Thomas--I am glad to see him in his place and I know that he will remember this--got phone calls every Sunday from the Government's Deputy Chief Whip? Patrick Hannon, the Welsh political correspondent for the BBC at the time, quoted the noble Lord as saying:
	"We were spoilt really from day one. Wigley and I were embraced by the Welsh Labour Party".
	The Prime Minister's position is absurd. If you have an electoral system that fails to produce an overall majority, the governing party may need to act with others--the noble Lord, Lord Cledwyn, inferred that that was so. It follows that if there is to be effective opposition to bad or inadequate government, the same rules of combination and inclusivity must apply.
	Mr Rhodri Morgan has a problem: he is called "Mr Brown". If there was no matching funding for Objective 1 expenditure for Mr Alun Michael, one can be sure that there will be none for him either. Therefore, where do we go from here? Almost certainly, the Assembly will fail to meet the expectations that have been created. It will blame that fact on a lack of powers and a lack of funds. It will demand more of both. Indeed, the process was started here this evening by the noble Lord, Lord Carlile of Berriew. As Mr Neil Kinnock observed when Michael Foot offered a measure of self-government, "A measure of self-government? You might as well talk about a measure of pregnancy!"

Lord Elis-Thomas: My Lords, it is always a pleasure to follow the noble Lord, Lord Crickhowell. This is almost a re-run of our pre-devolution debates. I am, of course, grateful to the noble Lord, Lord Carlile, for enabling us to have this debate. Unfortunately, I shall disappoint him. I shall not respond to any of the issues relating to the recent events in the National Assembly. I believe firmly that, as the Presiding Officer, I should not take advantage of my position in this place to defend myself, if I ever felt the need to, from his criticisms in a court of law, in this House or, indeed, in any other place.
	However, I wish to speak briefly about the implications of devolution for this House and, indeed, for the United Kingdom as a whole. I believe that we have achieved the beginnings of a new system of democracy in Cardiff which in style and content is very different from that at Westminster. That is not a criticism of Westminster; it is not a statement of praise for what we do in Cardiff. It is a reflection of the nature of devolved government. Devolved government will ever be thus. Whether it be Northern Ireland with its tremendous difficulties, the devolved Parliament in Scotland or the Assembly in Wales--we all operate differently.
	I believe that the lesson we must learn is the importance of understanding that new political institutions will of themselves create different political cultures in the way that they respond and operate. This House must understand its role as a quasi-federal structure in relation to the new devolved United Kingdom. That requires an understanding of how devolved political culture operates and a way of analysing that--not in comparison with what happens in Westminster but what happens in devolved bodies in other legislatures within the Commonwealth or Europe, wherever those comparisons are valid.
	Of course, there is an important issue here which the noble Lord touched on, and I am grateful to him for that. It concerns the importance of the way in which officials serve devolved bodies. Clearly, on occasion there can be tensions and conflicts. However, I am confident that the United Kingdom Civil Service has the tradition of impartiality in serving administrations that can enable it to cope with those situations. Of course, it requires that the officials who operate within devolved bodies understand the nature of devolution, understand the new politicians whom they serve, and are able to serve them in an impartial and effective way. That requires an understanding of the nature of devolution itself and also of the nature of the new political imperative which is part of the whole structure.
	I turn to my final point. Devolved bodies are accountable to the electorates of the devolved areas, nations or regions where they function. Ultimately, they are accountable in terms of the electorate to those structures. Therefore, when they operate on a day-to-day basis they must bear in mind that they do so in a political context with a new legitimacy, albeit a marginal one in the context of Wales because of the result in the devolution referendum. They are accountable to the areas they represent. Within those structures, their accountability to their elected representatives is as real as is the traditional accountability of the home Civil Service within the United Kingdom to this Parliament and Government. I believe that that most important principle increasingly is being understood in Wales and Scotland and has been understood over a long period in Northern Ireland, as I know from my noble friend Lord Molyneaux.
	Therefore, I have every confidence that the new Assembly in Wales will be able to develop its own style of government and its own unique politics in a way which will be different from Westminster but which will not require Members at Westminster to feel the need to debate its activity. In the nature of devolved bodies, what they do and how they function will be different from what happens here. The responsibility of this House is to care for the new United Kingdom in a manner which allows those devolved bodies to represent the electorates they are elected to represent.

Baroness Gale: My Lords, I thank the noble Lord, Lord Carlile of Berriew, for tabling the Question on the Government's policies and objectives in relation to devolution in Wales.
	One of the greatest joys in my political life was to attend the first sitting of the National Assembly for Wales last May and to see our dreams become a reality. Having spent 15 years of my working life preparing and developing the policies for devolution of the Assembly through the Labour Party, it was truly a wonderful day. Thanks to the Labour Government, we now have devolved power in Wales and it makes me feel proud to be Welsh, just as we all felt very proud last Saturday. I am sure that your Lordships will join with me in congratulating the Welsh rugby team on its great success at last. It is hoped that it will go forward in a few weeks' time to even greater success. It was a great effort for Wales which made us all feel proud to be Welsh.
	The new Assembly has been in existence for just eight months. During that period, the former First Secretary, Alun Michael, played an important role in ensuring the smooth transition of power which has been no easy task in that new Assembly. I pay tribute to his determination and courage in making the Assembly work.
	In his resignation speech, he demonstrated great dignity, ensuring that the Assembly could go forward and build on the work which he had started. History will be a better judge of his efforts, for his achievements will surely be recognised.
	I view with great sadness the events leading up to the no confidence Motion. In that regard, I must agree with the remarks made by the noble Lord, Lord Carlile of Berriew. It must be said that there is a general feeling among many people in Wales that the impartial role of the Presiding Officer, which should be very similar to that of the Speaker in other parliaments, was not maintained. That may be just a perception but, even so, it is a perception which must be acknowledged. Again, I recognise that those matters must be dealt with in Wales rather than in your Lordships' House. It is up to the members of the Assembly to decide whether or not they need to re-examine the role of the Presiding Officer.
	The new First Secretary in the National Assembly for Wales, Rhodri Morgan, recently quite rightly said that our own Parliament had taken over 800 years to mature and develop. In the eight months or so since the new National Assembly has acquired its powers, we should not expect it to have achieved perfection. That said, our young democracy in Wales has achieved much in a very short time in terms of process and policy.
	In terms of process, the new institution is up and running in a very short time with a combination of a Cabinet/government structure and a series of subject committees chaired by nominees from all the four parties in the Assembly. The subject committees are transparently and genuinely inclusive. There is considerable evidence of cross-party collaboration in their scrutiny and policy development roles. The agreed budget is evidence of the way in which collaboration is being developed between the Cabinet and the subject committees, with 30 of the 33 recommendations being accepted by the Finance Secretary, Edwina Hart.
	And then there is the highly innovative corporate plan, Better Wales, which highlights the importance of transparency, accountability and, above all, improvements in the service for the people of Wales; for example, better jobs, health, education and social services.
	In terms of policy development, the Labour Government of course believe that democratic devolution means developing policies in Wales appropriate to the needs of the people of Wales. I wish to highlight two of our Labour manifesto commitments which have been taken forward by the Assembly Cabinet and the appropriate subject committees.
	First, the education and training action plan was a major manifesto commitment for Wales which has now been progressed very considerably and has certainly influenced much of the thinking behind the Learning and Skills Bill. Discussion of the plan by the post-16 education committee has been a model of cross-party collaboration in the field of policy development.
	Secondly, probably the most important development in the Assembly in the past eight months has been the work of the health and social services committee in relation to its discussion on the need for a children's manifesto for Wales. That is another of the party's manifesto commitments. Of course, that assumes much greater significance following the publication of the North Wales child abuse report.
	In conclusion, the Secretary of State for Wales, Paul Murphy, has stated frequently in the past eight months that devolution for Wales is a settled question. By that he means that it is a democratic advance for the Welsh people which we, as a Government, have now achieved following a democratic mandate in the referendum. We have a challenging time ahead of us. What the Welsh people now need and deserve is a period of stability. It is only through such stability and improvement in the services provided to them by the Assembly that we shall win wider respect for the new institution which the Welsh people have created.

Lord Hooson: My Lords, writing in The Times last week the very distinguished Welsh writer, Jan Morris, said,
	"It must be patent to all that the crisis in the Welsh Assembly had at its root the inadequate degree of devolution it enjoys".
	I agree that there is an inadequate degree of devolution. But the greatest mistake that we could make would be to follow her advice and, as it were, be merely a party of protest in Parliament demanding confederation. That is a pipe dream. Whatever the faults of the devolution Bill, of which there were many critics in this House, including myself, let us face reality: we shall be unable to change it for some years to come.
	Surely the first task of the Assembly is to demonstrate to the people of Wales that it is making effective, imaginative, sensible and thorough use of the powers that it has. It has very considerable powers. Let us remember what they are. Basically, they are no more than control of the managerial and administrative powers of the Welsh Office. The powers of the Secretary of State were transferred to the Assembly and it has some other powers. But because it is an elected Assembly it can have far more influence than a mere administrative office.
	Essentially, the Assembly has taken over those powers. It has to satisfy the people that it is discharging those functions more effectively and acceptably than did the Secretary of State and his office. It is answerable to the people of Wales in a democratic way.
	I do not agree with Jan Morris that there is a crisis in the Assembly. There may be one in the Labour Party over it, which is partly in Cardiff and partly in London. There is no crisis in the Assembly as such. I believe that Simon Jenkins is quite right in saying that this is devolution in action. If the people of Wales do not wish to be dictated to from London they will say so, and they have. The question is an internal problem for the Labour Party and not for the rest of the Assembly.
	I wish to deal with two particular matters--one economic and the other social--over which the Assembly has a great deal of control. I deal first with the Objective 1 status in Wales. A great deal has been written and said about that. I refer to an article in the Financial Times by its political editor, Mr Brian Groom, on 10th February, which I believe was the very day of Mr Michael's resignation. The heading states,
	"Labour 'at fault' over funding crisis in Wales".
	It continues,
	"Labour's leadership in Wales is, at least in part, the author of its own misfortune over the funding issue".
	It continues by saying,
	"Achievement of Objective 1 status for west Wales and the Valleys, unlocking ... £1.1 bn of European regional aid between the year 2000 and 2006, was hailed by the government last year as a negotiating triumph. But the statistical sleight of hand that made it possible, also made a row over matching the cash from UK coffers inevitable".
	The article goes on to deal in detail with that matter. It points out that,
	"It maximised the EU funds available, but created a serious problem of [funding] from the Welsh assembly's £8bn annual budget".
	I need not go on with that.
	There is a crisis which has been created by the Government on that. About a fortnight ago in this House I said that we must remember that in Wales we see what is going on across the Irish Sea. We also see the funding which occurs there. We have seen the transformation of the economy of the Irish Republic. Without any doubt whatsoever the truth is that Wales has fallen behind the Republic of Ireland over the past 10 years.
	I say to the Labour Party and the Government that if they do not provide matching funding from the Exchequer, which the people of Wales were given to understand would be achieved, and if it is not provided this year, the Government will run the risk of losing every seat that they have in Wales. I believe that they will find the matching funding. If they do not, then there is something wrong with them. Equally, I believe that they should find matching funding for those areas of England which have Objective 1 status in Merseyside and Cornwall, for example. It is a crucial problem for the Welsh Assembly and for the Labour Party in particular, which is the major party in the Assembly.
	The second question is a social one and concerns the Waterhouse Report. It puts its finger on huge problems of administration and management in Wales. The Welsh Office was not spared and neither were the local authorities. Waterhouse has pointed out that this matter now goes to the Welsh Assembly. The Waterhouse report dealt with administration as it was before. The Assembly must deal with the recommendations of the report to show that it can do better.

Lord Prys-Davies: My Lords, the noble Lord, Lord Carlile, raises an important Question and I thank him for his thoughtful speech. But I answer the Question in the affirmative. The Government's policy objectives in relation to devolution of power to Wales are being achieved. Of that I have little doubt.
	In the nature of the settlement the Welsh Assembly is not only a new body; it is also a new kind of democratic institution. It is not a parliament as we know it. The late Richard Crossman may have called it a "mini-parliament"; others have called it a "quasi-parliament". It meant that new working methods, new ground rules, new procedures and new conventions had to be designed and settled. In those circumstances, no one can reasonably imagine that there would not be teething problems when the Assembly got down to business.
	It is, in my view, unfortunate that the pro-devolution parties in Wales had not worked together in a Welsh constitutional convention to educate themselves, and public opinion, about the practical issues and expectations raised by devolution and to agree guiding principles which would govern their relationship within the Assembly when it was formed. I say that notwithstanding the strenuous efforts in 1991 and 1992 of the then Archbishop of Wales, Alwyn Rice-Jones. The idea of a Welsh constitutional convention went against the orthodoxy of the day--that was particularly true of my party--and the opportunity was lost.
	I turn to the running of the affairs of the Assembly. It is evident that it has been through difficult times. But my noble friend Lord Cledwyn was right when he suggested that most of its troubles are teething troubles. I agree that it is also difficult to evaluate some of the indictments; for example, the alleged lack of coherence between the subject committees or the proper degree of understanding between officials and Assembly members. We are in difficulty in evaluating the criticisms because, to some extent, the Assembly has only been operating for nine months. It is difficult to determine factors such as efficiency of government when it has only been operating for that time.
	But I take forward the point raised by my noble friend Lord Cledwyn that perhaps the Assembly or one of its committees could analyse, with benefit, the evidence for the criticisms which have been voiced and address any mischief which may exist. I would expect it also to take on board some of the proposals advanced this evening, in particular by the noble Lord, Lord Carlile.
	It has been said, and there was a suggestion this evening, that the Assembly lacks adequate powers. That may arise in the future, but the final row within the Assembly which ended in the resignation of Alun Michael as First Secretary also showed, in its own way, that the men and women of the National Assembly for Wales have power strong enough to make a considerable impact on Welsh politics. As was pointed out in the letter to The Times last week, which I too read, Alun Michael is a gifted and hard-working politician. Nevertheless, the manner of his election was looked at with suspicion in Wales. In the result, he could never satisfy his critics, and today he seems to carry the blame for the apparent shortcomings of the Assembly. I believe that that is an unfair verdict which will probably be revised in due course.
	We come to his successor, Rhodri Morgan. He brings many qualities to the post of First Secretary. I believe that there has been a widespread favourable reaction in Wales to his election as First Secretary. The people in the street believe that he is a radical who is on their side against the establishment. For five years, when he was in Opposition, he worked on the Welsh Assembly plans. Now, as First Secretary, he will certainly have the authority to give impetus, focus and direction to the Assembly. I hope and believe that he will do precisely that. If I am right, his election will have been of considerable significance for the Welsh political landscape.
	The late James Griffiths, the Charter Secretary of State for Wales, was fond of an old Welsh saying: Deuparth gwaith ei ddechrau--that getting a job started is two-thirds of the task. The Welsh Assembly is up and running. Mistakes have been made, but mistakes have, of course, been made by all human institutions. There is clearly much hard work to be done by the Assembly members. However, I believe that the foundation for a creative period in Welsh history is now in place. I believe that the tide at Cardiff Bay is at last turning for the National Assembly. However, I add a word of caution. There are always unforeseen dangers; there are always new opportunities; the tide will always ebb and flow.

Lord Griffiths of Fforestfach: My Lords, like everyone who has taken part in this debate, I thank the noble Lord, Lord Carlile, for raising this timely Question. In answering it, we need to stand back and recognise three features of the Welsh Assembly. The first is that it is not yet a year old; it is only seven months old. The second is that it is a totally new kind of body in British politics. The National Assembly is itself a body corporate. As the noble Lord, Lord Carlile, remarked, that certainly poses difficult problems for civil servants in their allegiance to, on the one hand, the Members of the Assembly and, on the other hand, the members of the Executive. Because it is a new body, it has had to devise new rules and create new procedures. It cannot rely on Westminster. The third feature is that the Labour Party is in a minority position in government.
	We therefore have a body which is less than a year old, an entirely new kind of body, and a minority government which is complicated by the introduction of proportional representation. All this amounts to a new learning experience. Along with a lack of experience, there naturally is a lack of self-confidence. Because of this, I believe that the censure motions, the walk-out, the resignations and the no confidence motions that we have had are all symptomatic of something which has only just got under way. I do not see a crisis at all. I see the healthy development of an institution. The media may make much of these incidents; I believe that we should look at the real achievements of the Assembly.
	To my mind, the first great achievement is that after 600 years, as was said explicitly by the noble Lord, Lord Cledwyn, we have a National Assembly in Wales overseeing a budget of £7 billion, with Welsh issues being debated at greater length and drawing upon greater expertise than was possible at Westminster. When I go to Wales, as I often do, I sense that there is at present in Wales a buzz and a self-confidence which comes from the Assembly.
	Secondly--and nobody has mentioned the point this evening--the Welsh language has not proved to be divisive. The National Assembly is a truly bilingual institution. That is very important.
	Thirdly--here I disagree with certain speakers--I must pay tribute to the Presiding Officer and say how pleased we are to see him in his place this evening. I think that he has been remarkably successful in steering this new institution through uncharted procedural matters. We know that he is Welsh but, even so, he has done a tremendous job, which is also to the benefit of the Assembly.
	Finally, I do not see the Objective 1 issue as being a vote of no confidence by people in Wales. With a proper committee structure, one expects its members to probe issues. I think that the members of that committee should be congratulated on exposing the dissembling nature of the Treasury's behaviour in relation to the accounting of money from the European Regional Development Fund which remains in the coffers of the Treasury.
	In the past, I have argued strongly from these Benches that Welsh devolution was a good thing and something which would bring serious benefits to Wales. It would be mean-spirited of us this evening, as well as ill-informed, if we said that it was anything other than a success. The Government have every right to feel pleased that their objective in having a devolved Assembly in Wales--and I say this as a Conservative--has been achieved.
	However, I have three brief concerns. The first is the relationship between Cardiff and Westminster. The unearthing of the Objective 1 issue, primarily by Plaid Cymru, does not inspire trust by Cardiff in us here at Westminster. I believe that a constructive relationship between Cardiff and Westminster is important for both Wales and the United Kingdom. But with the contrast that is inevitably made between the Scottish Parliament and the Welsh Assembly, this will not be easy. Therefore, we in Westminster should do everything in our power to minimise the lack of trust that may arise. The only way to do that is to have clear rules, especially when it comes to money, and to have a minimum of negotiation.
	Secondly, there is the question of the improved economic performance in Wales. I do not think that it is impertinent for me to raise the issue tonight because I have a vested interest in seeing democracy work in Wales. Also, as a taxpayer, I have a vested interest in seeing Wales be successful. I am concerned at the past reputation of the First Secretary in his attacks on the Welsh Development Agency. I sincerely hope that there is not the feeling in Cardiff that the civil servants can really manage the Welsh economy. The market economy has to be embraced but, most importantly, that must obviously happen within the context of social cohesion.
	My time is really up, but I should like to mention my third point. Largely because of the role that I played with Mrs Thatcher in developing grant-maintained schools and NHS trust hospitals, I have always felt that devolution does not finish in Cardiff. Indeed, devolution should go beyond that. I hope that we shall see that in the Assembly. The challenge now is for the Assembly to articulate its vision for Wales--one which trusts the people as much as government. If it does so, I believe that in the next election we will see a real success and an endorsement of devolution.

Lord Brookman: My Lords, I, too, welcome this debate, initiated by the noble Lord, Lord Carlile of Berriew. Therefore, I believe that his critics in Cardiff, whom he mentioned earlier, are surely wrong. Indeed, it is valuable for us to have this debate. However, I must confess that the noble Lord threw me a little: I thought that the Question was whether the Government's,
	"policy objectives in relation to devolution of power to Wales are being achieved".
	We heard some excellent points--seven or perhaps eight--as to how the noble Lord thought that it could all be improved.
	In my view, the answer to the direct Question posed is yes. Indeed, the setting up of the Assembly, its very establishment, is the cornerstone of the devolution of power to Wales. Therefore, from my perspective, devolution is a settled question; a fact of life. Therefore I was somewhat concerned--I sensed some sour grapes here--at the brutal remarks of the noble Lord, Lord Crickhowell.
	Paul Murphy said that this was a settled question and that the establishment of the Assembly was a fact of life. I agree with that. One critically important aspect of the Government's devolution programme is their commitment to ensure that the policies are both appropriate to the needs of the people of Wales and are developed by the Welsh people themselves. In this respect I was impressed by the recent comments of the Chancellor of the Exchequer when he said that we must all learn from one another across the length and breadth of a devolved Britain and that the,
	"new democratic constitutional architecture not only rights past wrongs but better equips Britain for the future".
	He went on to say that,
	"The new devolved institution allows for innovation in policy making".
	I am sure that there is no quarrel with that in this House this evening.
	I am optimistic rather than pessimistic about the future. That is why I strongly welcome--as I hope do many other noble Lords this evening--the joint ministerial committees on the knowledge economy, on child poverty and on pension poverty. Such major issues cannot be overcome by Wales alone. As Paul Murphy said recently, poverty and unemployment do not respect national boundaries. I agree with that, as I am sure do many others here this evening.
	Cardiff and Westminster working in democratic partnership is an important major new development since the creation of the National Assembly. We, the Welsh, have the people and the personalities to ensure success.
	Many have already mentioned my next point. I wish to place on record my appreciation to the current Secretary of State for Wales, Paul Murphy. I am sure that the noble Lord, Lord Molyneaux, will agree that Paul Murphy was a key player in the Good Friday agreement. Alun Michael has already been mentioned. As the initial First Secretary of the National Assembly his hard work and commitment in difficult and challenging circumstances ensured that the Assembly was a success at the beginning and that our young democratic Assembly was established. We should pay tribute to him for that.
	It is my belief that the new First Secretary, Rhodri Morgan, will bring his rich talents and leadership to his new post. Rhodri needs our support to ensure that the Government's devolution objectives continue to be driven forward in Wales for our people. I am absolutely convinced that such matters as match funding or Objective 1 status will be achieved if we are united in Wales for the people of Wales.

Lord Davies of Coity: My Lords, I, too, wish to express my gratitude to the noble Lord, Lord Carlile, for introducing this topic this evening.
	Despite the difficulties he has experienced I wish at the outset to pay tribute to the work of Alun Michael, who became First Secretary of the new Assembly last May. It was he who coined the phrase "dynamic devolution". In my view the people of Wales are in his debt because of the commitment and the dedication he has demonstrated over decades to make "dynamic devolution" a reality over the past year.
	Increasingly politicians and members of the public in Wales are recognising that the Assembly will succeed or fail on the basis of whether it actually makes a difference to the lives of the people of Wales. The new First Secretary in Wales, Rhodri Morgan, put it in a nutshell last week when he said that the new young democratic institution is here and we fought to achieve it, to improve the lot of ordinary people, not for any privileged elite. That is also why the Labour Government, through the Prime Minister and the Chancellor, fought and achieved European Objective 1 status for the Valleys and West Wales. That is why, together, Labour in Westminster and Labour in Wales will deliver on their promises to transform for the better the old rural and valley economies of Wales.
	The key is outward looking democratic partnerships; what Paul Murphy, the Secretary of State for Wales, has called,
	"a Wales that is world wide"--
	not introspective and obsessed with constitutional change, but looking outwards, commercially and culturally. It is through democratic partnership and new forms of collaborative working that progress has been made in Wales. What the people of Wales now need above all is a period of political stability in order to ensure that they achieve the improvements in the quality of their lives that they so richly deserve.
	The Question posed tonight is to ask Her Majesty's Government whether their policy objectives in relation to devolution of power to Wales are being achieved. I suggest that they are being achieved. But we must recognise that the Assembly is new. It is early days. It must be given time to progress those objectives. Given that time, I have every confidence that they will be achieved. But the measure of achievement is clear. Not until standards of living and opportunities for the Welsh people have been substantially enhanced will the policy objectives be fully achieved. I have no doubt that the Assembly, given time, will succeed.

Lord Thomas of Gresford: My Lords, a number of your Lordships have pointed out that the Assembly has suffered from a great deal of negative publicity in its first eight months. I rather sympathise with the views of Mr Alun Michael when he said that the media in Wales was in "a fragile state" and called for a tougher and more challenging type of journalism which concentrates less on personalities and more upon the facts and realities of the decisions the Assembly has to make.
	To conquer the cynicism to which the noble Lord, Lord Crickhowell, referred, the Assembly's information services should be far more proactive in promoting the Assembly and explaining the way in which it works and the decisions which it takes. There is good news, as the noble Lord, Lord Davies of Coity, said a moment ago. I agree with my noble friend Lord Hooson that the Assembly is not in crisis. There is a buzz, as the noble Lord, Lord Griffiths, said.
	The positive side is that the machinery for policy making constructed for the Welsh Assembly is beginning to work. It is a new and different way of policy formation, as the noble Lord, Lord Elis-Thomas, pointed out. I have been impressed, during the course of the Learning and Skills Bill passing through your Lordships' House, at the way in which the policy has been formed in Wales. The Education and Training Action Group, under the chairmanship of Mr Peter Hain, produced a report in March 1999. It was one of the first issues to be discussed in June 1999 by the Post-16 Education Subject Committee--a cross-party committee with a Plaid Cymru chairman. It produced a report, which was discussed in plenary session of the entire Assembly. Amendments were debated. As a result, when draft primary legislation for Wales was produced, it was discussed by the Assembly before it came here. That is the way that policy formation should be handled.
	However, there is also disappointment. The policy objectives trumpeted were a stronger economy in Wales, more jobs and better access to European funds. Mr Alun Michael unhappily failed to convince us that he was an advocate for Wales in Westminster rather than for Westminster in Wales. If he feared the impact of any criticism of the Blair Government or of the Treasury on Welsh Westminster Labour-held parliamentary seats, I am afraid that Ceredigion was the answer, where the Labour Party came last.
	I feel that an opportunity has so far been lost to achieve those shared objectives by reason of a lack of co-operative mechanisms within the Assembly. Mr Michael wrote to the leader of the Welsh Liberal Democrats, Michael German, on 29th November, in response to suggestions that he put forward, saying:
	"We are all learning as we go along with our new Assembly. I share your view that we do not yet have all the mechanisms in place which we need to draw the Assembly together effectively ... In particular, I agree that we need to find a way of bridging the gaps between the work of the individual committees and the plenary, which has tended to be more confrontational. We need a cross-party mechanism which allows us collectively to engage in serious discussion of key policy issues".
	Mr Michael was absolutely right in that. He welcomed the ideas in Michael German's letter.
	No core programme for government has ever been worked out upon which consensus between the parties can be built. I am sure that every Assembly Member is working for the benefit of Wales. In the short-term, there are no real major ideological differences. But if there is to be the kind of partnership approach which Mr Rhodri Morgan has now commended, if there is to be inclusivity and the stability to which the noble Lord, Lord Davies of Coity, referred, it has to be recognised that, as partnership, it cannot be portrayed as a Labour programme, credited to the Labour administration just with the support of other parties. I fully understand why the noble Baroness, Lady Gale, refers to the fulfilment of Labour Party manifesto commitments, but I hope she appreciates that we on these Benches have been talking for 20 and 30 years about the ideas that eventually surfaced in the Labour Party manifesto. The ideas come from everyone with Wales at heart.
	Similarly, the noble Lord, Lord Prys-Davies, referred to the need for a Welsh constitutional convention. My noble friend Lord Carlile of Berriew, to whom we are grateful for this debate, himself proposed that very thing some years ago to the Labour Party and it was simply not accepted at that time. We have always wanted that kind of inclusive approach.
	So why is there no core programme? It is because the agenda is driven by Westminster. It is bound to happen where the primary legislative function is withheld from Cardiff. The priorities are bound to be Westminster priorities. I agree with my noble friend Lord Hooson that the Assembly has to perform its existing functions, but I also believe that there must be slow evolution towards primary legislative powers for the Welsh Assembly itself if devolution is ever to function properly. We need to develop the subject committees; we need to open cross-party discussion of Green Papers and White Papers, with consultation with interested bodies in Wales and the taking of evidence where appropriate, as happened with regard to the Learning and Skills Bill. Welsh primary legislation should be drafted in Wales in parallel and considered by the Assembly in plenary session prior to its introduction at Westminster.
	Those are developments for the future. We must continue in Westminster to discuss these issues. I reject any suggestion that it is not appropriate for us to discuss them. If there is to be development along those lines, this is where it is going to start. My noble friend Lord Carlile said that we must sustain the impetus of devolution. Mr Charles Kennedy said a week ago in Cardiff that:
	"it is imperative that the Assembly works and is seen to work, with credibility and authenticity".
	I agree with both my noble friend and my right honourable friend.

Lord Roberts of Conwy: My Lords, I add my compliments to those already given to the noble Lord, Lord Carlile, on securing this timely and valuable debate. I would remind the noble Lord that I have an oral Question down for 1st March, so he can turn up here to assist me with his daffodil.
	There are two very different views of the current position of the National Assembly. One is cheerfully optimistic and was well represented by the Prime Minister in an article in The Times on 12th February, in which he argued that devolution is giving new expression to existing regional and national identities.
	"From time to time",
	he wrote,
	"politicians will find it a bumpy ride".
	I am sure that the fallen First Secretary would agree with him on that.
	Others are, if not cynical, frankly disappointed. That is the description most commonly applied to the Assembly's performance to date, even by many of those who voted for it in the referendum. It would be very unwise to ignore that feeling in the country.
	Personally, I believe that we have to distinguish between the National Assembly as such, which shows all the immaturity and inexperience of a novel institution, and the Labour administration's handling of it. Alun Michael's resignation has been talked about as being occasioned by his failure to secure match funding from the Treasury for the European moneys promised for the Objective 1 area. But of course there was more to it than that. Nevertheless, his successor, Rhodri Morgan, is unlikely to gain a firmer undertaking from the Treasury and will have to rely on his wit and bonhomie to save the one-legged duck, as he described himself, from yet another cull by opposition Members. The party political numbers of the Assembly remain the same, with all the opposition parties, I suspect, wishing to remain as independent of the Labour administration as possible and therefore blameless for anything that may go wrong, as the general election looms ever larger. I am sure that they regard the plea for inclusive politics as a device to keep the Labour Party in power, and they may well be right.
	I want to raise a key practical point which has to do with our role here at Westminster as primary legislators--a role that we still have, and I agree with the noble Lord, Lord Hooson, that it will probably continue for the foreseeable future.
	It has become clear in recent weeks that the Assembly is badly out of sync with the UK Parliament in that the Assembly has not completed its consideration of policy before we have begun our consideration of Bills that give effect to those policies. One example is the Learning and Skills Bill, which sets up a new major council for education and learning in Wales. We took the Second Reading of the Bill weeks before a plenary session of the Assembly approved the overall policy. That is putting the cart before the horse in a big way. The message must be loud and clear: if Assembly members want this Parliament to take account of their views, they must complete their deliberations before the primary legislative process begins. There are serious consequences if that does not happen.
	The noble Lord, Lord Thomas of Gresford, who also attended the Committee stage of the Bill last week, knows as well as I do, as does the noble Baroness, Lady Farrington, who will reply to the debate, that the Bill is incomplete so far as concerns Wales and significant amendments will have to be tabled at a later stage. That may mean curtailment of our consideration of them. This is a serious matter. I suspect that it is causing some concern within the Government and that they will wish to put it right.
	The same criticism can be levelled at the Local Government Bill, which was also first introduced in this House. It was established on the first day in Committee that the Welsh amendments would not be available until Report stage because of some dilatory consideration within the Assembly. If those amendments are significant, we may be in recommittal territory.
	To sum up on this point, the Assembly must adjust itself better to the primary legislative process. What is subject to primary legislation in England must surely be similarly treated where Wales is concerned. It is no use leaving everything to secondary legislation. That is not the catch-all that some believe it to be. It has its limitations.
	I say with some regret that a number of Assembly Member give the impression that they wish to distance themselves from this Parliament and relish their isolation. If so, I believe that they are mistaken. There are many of us at Westminster who genuinely wish to be helpful to the Assembly and to see it succeed, but to achieve our aim we must be kept fully informed of the Assembly's proceedings in its committees as well as its plenary sessions. We must not be kept in the dark.
	In conclusion, I am very glad that the Presiding Officer is in his place. I have read in the press that the noble Lord, Lord Elis-Thomas, came under a great deal of what I regard as undue pressure from the Government during the recent turmoil and that there is public concern about the independence of his office and staff. If that were true, many of us would share that concern. Indeed, my noble friend Lord Crickhowell and I tried to press an amendment to secure the independence of that office during the passage of the Government of Wales Bill. I hope that the noble Baroness who is to reply is able to reassure us on that particular score.

Baroness Farrington of Ribbleton: My Lords, I begin by thanking the noble Lord, Lord Carlile, for giving the House the opportunity to debate this matter tonight. I am delighted to have the opportunity to respond to the noble Lord's Unstarred Question and to most of the points raised in the debate. It is clear from the contributions of all noble Lords who have spoken that there is wide-ranging support and goodwill to make devolution work. I cannot resist the temptation to join all those noble Lords who have claimed historical support for the principle of devolution. I join my noble friends Lord Cledwyn, Lord Prys-Davies and Lord Brookman, among others. For us, the establishment of the Welsh Assembly is an enormous achievement.
	For the benefit of the noble Lord, Lord Thomas of Gresford, 100 years ago Keir Hardie, Labour's first MP who represented Merthyr, argued for devolution along with workers' rights, reform of the House of Lords and a minimum wage. I am happy to join the noble Lord in welcoming his party to the principle of devolution established by Keir Hardie.
	The Government's policy objectives in relation to devolution of power in Wales were very simple: to give democratic expression to the sense of identity which has always existed among the people of Wales. We believe that that policy objective has been clearly achieved. As my noble friends Lord Cledwyn and Lord Brookman indicated, we do not believe that central control promotes good government. Government should be close to the people, and the Assembly is a clear implementation of that policy. It is vitally important that the Assembly works well with central government, and that is happening.
	Noble Lords will recognise that what goes on by way of informal contacts is at least as important as the formal mechanisms. There is a formal memorandum of understanding with the UK Government which sets up the machinery of the Joint Ministerial Committee. As my noble friend Lord Brookman said, there are many issues which know no boundary within the UK, poverty being one of them. That is why there are formal concordats between the Assembly and various government departments, some published and others about to be. If anything, it is even more important that the informal machinery works well from the start. I join the noble Lord, Lord Thomas of Gresford, in supporting the example of the Learning and Skills Bill as an area where Welsh needs and wishes inform decisions of this House.
	The noble Lords, Lord Elis-Thomas, Lord Griffiths, Lord Thomas of Gresford, and Lord Roberts, have suggested that the legislative process in Westminster does not always mesh well with the policy processes of the Assembly. The same issue has been raised in the Assembly in the debate on the Government's legislative programme which was attended by the Secretary of State for Wales. As a result of that debate, the Assembly has discussed a draft protocol under which it can put proposals for primary legislation to the Secretary of State. He expects to receive it in the near future and will discuss it with colleagues and an agreed procedure will be adopted.
	However, the process this year is not being held up until the adoption of the protocol. The informal links are already in place and in accordance with the memorandum of understanding and various concordats, discussions are already taking place.
	I can understand the pride of my noble friend Lady Gale at being present when the Assembly first met in May immediately after the elections. But noble Lords are also aware that the Assembly did not receive its functions until 1st July; and detailed policy discussion did not get under way until the autumn. As my noble friend Lord Prys-Davies said, it was inevitable, therefore, that this year would not always run totally smoothly. As my noble friends Lord Cledwyn and Lord Prys-Davies, and the noble Lord, Lord Griffiths, said, the Assembly is a new body. It is a learning process and an exciting challenge both for the Assembly and for Whitehall. I welcome the transparency of policy making in Wales.
	The Government have no wish to put difficulties in the way. As the noble Lord, Lord Griffiths, said, the systems are new and the UK Government have had to learn how to accommodate them. The noble Lord, Lord Elis-Thomas, referred to the new political culture that will be inevitable in new political institutions. I join with the noble Lord, Lord Roberts, and my noble friend Lord Prys-Davies, in being confident that we shall learn from experience and will have far fewer problems next year. It is in the nature of human beings and human organisations that no one can predict that there will never be another problem. But we are working hard to ensure that we work together.
	Noble Lords raised the argument for giving the Assembly responsibility for its own primary legislation. That was not the form of devolution for which people in Wales voted in the referendum. I have no doubt that any future developments in the field of devolution will be dependent on people making a choice at the appropriate time based on their experience so far.
	I respond to the point of the noble Lords, Lord Hooson and Lord Griffiths, that the Assembly already has many powers to control and influence matters of great importance to the people of Wales. It has always been our view that this gives the Assembly genuine scope to make a real difference in Wales, and I know that the new First Secretary feels the same.
	The noble Lord, Lord Roberts, referred to this young institution as having some dilatory consideration procedure, for example, with regard to the Local Government Bill. In developing this new process there will obviously be a mismatch of timing from time to time. But we believe that the process is valuable and we must work hard to make it work. My noble friend Lord Prys-Davies referred to the lack in Wales of the benefit that the people of Scotland had in the form of the constitutional convention.
	The noble Lord, Lord Elis-Thomas, stressed the importance of our working in partnership with the Assembly to develop procedures which allow the decisions that it takes to be implemented. But it is not the job of any of us in this House to second guess the decisions taken in Wales by those closest to the lives of the people who will be affected by those decisions.
	I was a little concerned when the noble Lord, Lord Roberts, used the expression "we must be kept informed". It is important that in a democracy we are kept informed, and that everyone is aware of what institutions are doing. I am sure that he did not mean that we ought to be informed, as it were, as the parents in a family in a political democracy where the different partners are developing. I am quite sure that we want a partnership approach rather than a heavy-hand approach, which would be totally at odds.
	It is not for noble Lords and certainly not for the Government to discuss, debate, evaluate and judge the policy, procedures and political judgments of the Assembly. Those are matters for the people of Wales, and the success of devolution will ultimately depend upon the suitability of the decisions that are taken, in terms of them gaining the confidence of the people of Wales.
	The noble Lords, Lord Thomas of Gresford and Lord Griffiths, referred to a buzz and self-confidence. I have also felt that, and not only in the context of the Welsh rugby success that was referred to by the noble Baroness, Lady Gale.
	The noble Lord, Lord Griffiths, raised the issue of the current First Secretary and the WDA. Rhodri Morgan has been the Assembly's Economic Development Secretary since May. During that time he has worked closely with the WDA in promoting the economic prosperity of Wales.
	The noble Lords, Lord Roberts, Lord Griffiths, Lord Carlile and Lord Elis-Thomas, raised issues in regard to the Civil Service. Assembly civil servants are members of the unified Civil Service and carry out their functions in accordance with the Civil Service Code. The Assembly is a body corporate, as established by the Government of Wales Act 1998.
	My noble friend Lady Gale referred to the draft strategy document, Better Wales. I compliment the Assembly on the process of consultation that it is undertaking in that regard. I agree with the points raised by my noble friend about the importance of the development of quality areas, in particular in regard to the tragic story of the North Wales Child Abuse Inquiry report and the Assembly view that there is a need for a Children's Commissioner.
	I return to the issue of Objective funding. As my noble friend Lord Davies of Coity stated, no-one should doubt the commitment of the Government to ensuring that the money necessary to match funding in those areas where it is appropriate will be the subject of detailed discussion during the comprehensive spending review. It would not be sensible to take one issue outside the normal process. I think the noble Lord, Lord Griffiths, is wrong. There is no money staying in the Treasury coffers. We are totally committed to the policy of devolution and to ensuring that the funding that is available to Wales will be available in Wales.
	I join other noble Lords in paying tribute to Alun Michael's hard work and his contribution to the setting up and operation of the Assembly. I extend my very best wishes to Rhodri Morgan in his new role. We have an example of devolution in action and I join all noble Lords, once more thanking the noble Lord, Lord Carlile, in developing the debate, but stressing yet again that we must not appear to usurp the role of the Assembly in making its own political policy judgments and developing democracy in Wales. We all wish it well, even though it is not yet 1st March.

House adjourned at ten minutes past ten o'clock.